Earlier this week, fellow fool Rich Smith noted that analysts' expectations for PetSmart's (NASDAQ:PETM) upcoming earnings report were somewhat underwhelming. This Motley Fool Stock Advisor pick has treated its loyal owners to better-than-expected numbers several times in recent quarters -- but not this time. The specialty pet supply retailer announced its third-quarter results after the bell yesterday, and they were neither underwhelming nor overwhelming -- just sort of, uh, whelming.

Net income for the period came in at $0.21 per share, just as it did in last year's third quarter, and adjusted earnings of $0.19 matched both the consensus forecast and the company's recently lowered guidance. Revenues managed to top expectations, however, rising 10% to $907.7 million, aided by a 2.4% bounce in same-store sales and the addition of nearly 90 new locations.

While PetSmart shoppers can find aisle after aisle stuffed with a broad selection of premium pet foods, toys, treats, and related merchandise, the company's fastest-growing segment provides services like grooming and training. Demand is growing for these services as consumers pamper their pets like never before, and competition is less of a factor. The local Wal-Mart (NYSE:WMT) would be happy to sell a foot-long chew toy for your chocolate Lab, but they sure won't clip his toenails for you.

Revenues generated by pet services have been rising at a 20%-plus clip for some time, and this quarter was no exception. PetSmart booked a 24% gain to $71.5 million in that key category. Meanwhile, rival Petco (NASDAQ:PETC) has seen a similar trend. The No. 2 player in the industry isn't scheduled to announce its latest results until next week, though it did report a comparable 22% increase last quarter.

Net income at PetSmart has been trotting along at a brisk pace for the past four years, steadily rising from a $31 million loss in 2001 to a $171 million gain in fiscal 2005. However, the shares have played dead over the past 12 months, shedding nearly one-fourth of their value. That has brought the forward P/E multiple on the stock down to around 18 -- a sharp discount to its historical average. With analysts anticipating a racy 19% growth rate going forward, the shares are trading at a compelling PEG of just 0.9.

Better still, operating cash flows have doubled net income over the past year, giving the stock a reasonable price-to-cash flow ratio of around 10 -- less than half the industry norm. With demand for higher-margin premium services likely to fuel stronger store traffic and lure in new customers, PetSmart seems poised to increase its industry-leading share of this fragmented market. While the company has experienced something of slowdown of late, the long-term outlook -- much like a puppy barking at the door -- is difficult to ignore.

Adopt one of these Fool Takes:

Fool contributor Nathan Slaughter owns none of the companies mentioned.

Fool co-founders David and Tom Gardner bring you their best stock recommendations each month in the Motley Fool Stock Advisor newsletter. Sign up for a free trial today.