Consistently generating sales growth is no small feat, especially not with inflation running rampant. But one company that has been able to do just that is Petco Health & Wellness (WOOF -1.27%). The business that's focused on keeping pets healthy has proven to be not just recession-proof but also a company that investors can rely on for consistent growth.
However, despite posting an impressive top line that keeps growing, investors haven't been buying up the stock. Year to date, its shares have fallen by 18% -- worse than the S&P 500's decline of 13%. Are investors overlooking a golden opportunity with Petco?
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Petco has grown for 14 straight quarters
When Petco reported its latest quarterly results last month, it was the 14th straight period in which it had generated growth. Net sales for the period ended April 30 came in at a little less than $1.5 billion, which was good for a 4.3% year-over-year increase in the top line. Its comparable sales growth was even higher at 5.1%.
For fiscal 2022, Petco projects that its net revenue will be between $6.15 billion and $6.25 billion. At the midpoint, that would mean revenue growth of approximately 6.9%. Although this isn't terribly high, any kind of positive projections amid such challenging macroeconomic conditions is a positive for investors. And stable, modest growth can make Petco a safer long-term investment to hold than more volatile stocks.
It offers essential, recession-proof products
What makes Petco attractive is its ability to continue growing amid a downturn or recession. And that's because many of the products it sells are essentials for pets. On the company's earnings call last month, management compared the consumables it sells to milk and eggs that people buy on a regular basis. And the company is even seeing growth opportunities with CEO Ron Coughlin telling Yahoo! Finance in a recent interview that "what we're seeing is upgrading of foods, continued premiumization toward the most premium kibbles, fresh frozen foods."
Pet owners will continue spending on their pets as these types of expenses, focused on food or just general health, are necessities. And the industry as a whole is experiencing some strong growth. In 2021, the American Pet Products Association reported that spending on pets in the U.S. topped $123.6 billion -- up an incredible 19.3% year over year. In 2020, the growth rate was just 6.7%, which was in line with the 7.3% increase that took place a year earlier.
An uptick in pet ownership during the pandemic has led to a flurry of revenue growth of late. Although there may be a slowdown this year, spending on pet food and consumables is largely recurring and, at worst, should still provide investors with some long-term stability from this industry.
Should you buy Petco stock today?
Petco hit a new 52-week low of $13.71 last month. And although it has rallied since then, the stock is still around the lowest levels it has been since it went public in early 2021. It's trading at a forward price-to-earnings multiple of less than 17, which is better than the 18 times future earnings that the S&P 500 is averaging today. It's not a huge discount, but it suggests that the stock isn't an expensive buy right now.
Petco's growth looks likely to continue for the foreseeable future, and that can make it a worthwhile investment to be holding onto right now. At a time when many businesses are struggling to find ways to grow, Petco has been separating itself out from the pack. And it may only be a matter of time before growth investors start to take more notice of this underrated stock.
