You're relaxing and watching television when the saddest commercial that ever ran fills your screen. Sad puppy-dog eyes are crying for help. An emaciated cat is locked in a cage, looking so frightened that it would make you think our world represented hell. You have an opportunity to do something to help these animals, but you don't. This is because you have no ties to these animals, and because you don't trust where the money is going.
Apologies for the somber mood, but that mood is about to brighten. The good news is that if you want to have an opportunity to save pets' lives, while also making a solid investment, you can. This is the best of both worlds, and it can be accomplished via PetSmart (NASDAQ: PETM ) .
A moral company
It's sometimes said that a man is measured by his deeds. PetSmart might present an opportunity in this regard to make your life more rewarding.
When you invest in PetSmart, you're investing in a company that, through its charities, has saved more than 5 million pets' lives since 1994. In 2012, it found homes for 4,500 dogs and cats. In addition to finding homes for animals, PetSmart helps to maintain pet populations via spay and neuter procedures.
While no one wants to lose money, even if the stock market crashed and you lost a substantial portion of your PetSmart investment, you would at least know you were doing the right thing. The best part is that due to Americans' deep attachment to their pets, PetSmart is relatively resilient to broad downside market moves. While PetSmart isn't the most resilient company you will find, Americans will still spend on their pets before they spend on many other items when times are tough.
An underrated company
In fiscal year 2012, PetSmart had sales of $6.8 billion. PetSmart's broad portfolio of 11,000 store products and 10,000 online items has been the key driver of this growth. PetSmart carries nationally recognized brands as well as proprietary brands. However, when it comes to the pet supply market, what separates PetSmart from other companies that offer pet supplies, like retail behemoths Amazon (NASDAQ: AMZN ) and Wal-Mart (NYSE: WMT ) , is its pet services.
For instance, PetSmart offers pet training, day camp for dogs, boarding, and PetsHotels (169 of them), the latter of which comes with 24-hour supervision. The key point here is that while Amazon and Wal-Mart are capable of stealing market share for pet supplies, they can't compete with PetSmart's pet services, which gives the company differentiation.
In the third quarter, PetSmart's net sales increased 4% to $1.7 billion year over year. Net sales are important but not as important as comps, which exclude new store openings. Fortunately, comps increased 2.7%. Therefore, PetSmart has established a loyal customer base and is seeing repeat business. As far as those pet services go, service sales jumped 5.2% to $184.2 million. This might not make up a significant portion of the company's revenue, but this segment is continuing to grow.
For the fourth quarter, PetSmart expects total sales growth of 4% to 5% on a 13-week basis, with comps increasing an estimated 2.5% to 3.5%. Earnings per share are expected to come in at $1.19 to $1.23. For fiscal year 2013, PetSmart expects total sales growth of 5% on a 52-week basis, with comps growing at a 3% to 5% clip and EPS coming in at $3.94 to $3.98.
If you're looking to invest in a highly resilient company, then you might want to consider Wal-Mart. The company's results haven't been surpassing expectations recently, but Wal-Mart continuously finds ways to grow, including the future introduction of its small-box stores to steal market share from the dollar stores. Wal-Mart also yields 2.4%, which will help limit any downside pain. PetSmart currently yields 1.1%.
If you're looking for growth potential, consider the other aforementioned company, Amazon. However, Amazon is currently trading at 147 times forward earnings. Therefore, expectations are very high. Furthermore, there is no dividend yield. This is a higher-risk/higher-reward investment.
The bottom line
PetSmart might not offer the most growth potential or the most resiliency, but it offers a little bit of both, and the big bonus is knowing that when you invest in PetSmart, you're also helping to save pets lives. To pet lovers, nothing could be more important.
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