Four Reasons To Invest In PetMed Express

A recent cover story on the “Pet Economy” in BusinessWeek reported that Americans spend some $41 billion a year on their pets – more than they spend on movies, video games, and recorded music combined. Nearly half of that, according to the magazine, goes for veterinary care and medication. Pet spending may rise to $52 billion annually in the next two years – an increase of nearly 27%.

Figures like these make the country’s largest pet pharmacy, PetMed Express Inc. (PETS), worth a closer look. The Pompano, Fla.-based company sells discount medication by mail through its 1-800-PetMeds toll-free number, website and direct mail campaigns.

Here are four reasons you should consider PetMed Express:

It is the largest pet pharmacy and only significant discount mail-order pet pharmacy as the pet business registers double-digit growth rates.

It has managed to source its product as it maintains an uneasy relationship with its main competitor – the fragmented veterinary practice market.

It is recording significant internal growth in sales and profit as it increases advertising efficiency, adds new clients, boosts reorders, and upgrades service and IT.

It has no debt and a huge cash reserve it is using to buy back its own stock.

While it seems like a surefire idea given the burgeoning pet economy, PetMed has actually had a tough time because it undercuts veterinarian sales of drugs, an important source of income for pet doctor practices. For a while, veterinarians refused to write prescriptions for the mail-order pharmacy and the company ran afoul of authorities for having alternative vets online write prescriptions without examining the pet [something not unheard of in human medication]. Some of the bigger drug companies even refuse to sell directly to PetMed to avoid alienating vets, who account for a good two-thirds of pet drug sales. However, PetMed has managed to source its products through wholesalers.

PETS 1-year chart