The boom in pandemic pet adoption and the practice of treating those furry friends as well as any member of the family are driving forces behind a growing market for pet care. According to the American Pet Products Association, total pet industry expenditures are expected to increase by $6 billion in 2021, to $109 billion.

Whether it's a scheduled visit or an emergency, the need for veterinary services and wellness products is inevitable. All of these trends spell wins for a company like PetIQ (NASDAQ:PETQ). But what will happen when the seemingly endless pandemic impact starts to fade?

Two young children play with their pet dog on the bed.

Image source: Getty Images

Numbers in a nutshell

PetIQ provides services to over 1.2 million pets across 41 states through 3,400 clinic locations, 70,000 mobile clinics, and more than 100 wellness centers. Working in partnership with 250 retailers and a full supply chain of clinics, manufacturing facilities, and distribution centers, it offers a full line of health and wellness products and services. The company can also proudly boast being the only pet wellness company operating veterinary clinics in 12 of the top 20 U.S. retailers, including Walmart, Tractor Supply Co, and Pet Supplies Plus, the third largest specialty pet food retailer in the U.S. On top of that, PetIQ also provides telehealth services, which has become an extremely important part of healthcare in the midst of lockdowns.

During its recent fourth quarter earnings call, the company presented decent results, all things considered. In the face of decreased revenues from its services segment due to temporary clinic closures as a result of COVID-19, the company was able to generate a 6.4% net sales increase. Gross margin also increased, from 13% to 17% and gross profit came in at $28.6 million, just a whisker short of 40% growth year over year.

With its services segment taking a hit of 1.5% during the quarter some may see that as a caution flag; however net revenues for services increased by 60% on a quarter over quarter basis. For the full year, net sales came in at an increase of 10%.

What's next

Going forward, revenue will be somewhat dependent on reopenings progressing in a positive direction. As of now, all 126 wellness centers and community clinics are open and operating. Coming off of what it sees as a strong finish to 2020,  PetIQ has lofty goals for 2021, including the opening of 130 to 170 new wellness centers. It also expects to generate full year incremental EBITDA contribution of $20 million as a result of its Capstar acquisition -- a product line boasting a best-selling oral over-the-counter flea treatment product for dogs and cats --  in 2020. The company also stated that it has started the year off on a positive note, and has strong visibility into another year of solid sales growth, particularly in the product segment.

If there is one negative that came out of the company's fourth quarter earnings call, it's that no outlook was given regarding services revenue due to the uncertainties related to COVID-19. However, this is consistent with company comments in the third quarter earnings call.

Up and to the right

Like many companies, PetIQ's stock price has experienced some volatility in line with market declines, but the chart flow remains up and to the right. In fact, if you had invested in PetIQ when it went public in July of 2017, you could have gained 98% on your principal. Further supporting the strong start to 2021, and a near term gain, is a reportfrom Raymond James analyst, Brian Nagel, who recently upped his 12-month stock price target from $35 to $45. Although projected estimates call for a decline in earnings per share (EPS) for Q1 on a year over year basis, a solid year overall is projected with an estimated annual EPS of $1.11, followed by $1.54 in 2022.

Once we see how the services segment rebounds, it may be likely that we will see even higher gains long term. For investors who want to take a nibble now, I wouldn't shy away from scooping up a couple of shares at their current price. But you may want to keep a close eye on Q1 earnings -- expected to report in early May -- looking for a potential beat on consensus estimates and signs of a recovery in motion for the services segment. If that takes place, it might be a good time to add lots of PetIQ stock to your portfolio for the long haul.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.