PetMed Express Shares Plunged: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of pet pharmacy PetMed Express (Nasdaq: PETS  ) slipped as much as 11% in intraday trading today on heavier-than-average volume.

So what: PetMed is nicely profitable, trades at a pretty reasonable valuation, and even pays a decent dividend. But the company's growth has slowed dramatically in recent years -- from a 17% revenue gain in its 2009 fiscal year (which ends in March), to less than 9% in 2010, and all the way down to 1.4% over the past 12 months. Wall Street firm Piper Jaffray doesn't think the trend is about to change. The firm put out a research note reiterating an "underweight" rating on PetMed shares, saying that competition is continuing to put pressure on both volumes and pricing.

Now what: What does this note mean for PetMed s hareholders? It shouldn't mean blindly dropping the stock from your portfolio. Not only do Wall Street analysts get it wrong sometimes, but differences in investment timeframes and expected returns can make an investment attractive to one investor while it's less attractive to another. However, based on PetMed's record over the past few years, the concern about competitive pressures shouldn't be dismissed, so the warning from Piper could be a good reason to dig back in to make sure the stock is still an attractive investment.

Want to keep up to date on PetMed Express? Add it to your watchlist.

                

The Fool owns shares of PetMed Express. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.                                                                                       

Fool contributor Matt Koppenhefferdoes not own shares of any of the companies mentioned. You can check out what Matt is keeping an eye on by visiting his CAPS portfolio, or you can follow Matt on Twitter @KoppTheFoolor on his RSS feed. The Fool's disclosure policyis looking forward to a great 2011!


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  • Report this Comment On January 04, 2011, at 7:04 PM, JPDemers wrote:

    Management seems to be stuck in a time warp. The whole 1-800-PETMEDS thing might have been cutting-edge trendy in the 1990s, but today it creates a tacky, late-night-cable-TV vibe -- and the web site itself is cluttered, dated, and unattractive. Great if you're peddling toys to pre-teens, maybe, but if you're selling prescription medications to people who take their pets' health seriously, not so much.

    If you arrive there from a Google search (they do get kudos for being top of the page), I think you're as likely to move on as to place an order.

    In my opinion, PETS needs an overhaul, and a more modern and professional image.

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