Pet Med Express Gives Us the Warm and Fuzzies

Despite the market taking yet another hit, SmartGuyStocks' selection Pet Med Express (PETS) gave us something to smile about, shooting up over 20% Tuesday. PETS beat analyst expectations for its third quarter as earnings rose 60% on the strength of a 19% jump in sales. The company also continued to deploy its strong cash position towards buybacks, purchasing 1% of the float in the quarter.

While the company has yet to release detailed financials, we can guess that overall margins improved due to the strength of re-orders and internet sales, which both outpaced overall sales growth. These are extremely positive trends for the company. Re-orders indicate that customers are happy and the company may be able to rely less on Betty White and more on word-of-mouth advertising. Online growth means that customers are moving away from the more overhead-intensive phone ordering.

Hopefully, Tuesday definitively proved to investors that PETS is not a consumer discretionary stock. Note the contrast with leading pet retailer PetSmart (PETM), who Tuesday night slashed its forecasts on weak consumer spending. As I have been saying repeatedly, consumers increasingly think of pets as members of their families, and medications for family members are necessary purchases. PETS will continue to profit from this whether or not there is a recession, and we will continue to hold our shares.

Disclosure: SmartGuyStocks is long PETS.