by Shabbar H. Kothari, Aamir H. Kothari
PETS reveals no economic moat, but recent bad news has produced an opportunity
|Last trading |
|Fair Value |
$30 to $34
Weak to None
At $23.5, PETS is undervalued and we recommend a BUY.
A combination short-term guidance misfires and PetSmart’s acquisition of Chewy have caused market-wide panic, float short % to skyrocket, and PETS’ market cap to halve over the past 9 months.
A price correction was deserved but the market has overreacted. PETS’ price-implied-expectations (discussed later in detail) indicate a contraction in sales growth and margins that defy rationality.
Our analysis indicates a fair value range of $30 to $34, with an expected return of 4.5% to 7.2% CAGR over the next five years.
A target price of $16 to $18 would upgrade this recommendation to STRONG BUY.
For full report, see link below: