At noon, America's largest pet pharmacy, PetMedExpress
PetMed is a small cap that offers approximately 750 of the most popular pet medications and health products for dogs, cats, and horses. PetMed markets its products via television, the Web, direct mail, and print advertising. These campaigns direct customers to the company's website or its toll-free telephone number. In the latest quarter, 57% of orders came through the company's website, which may represent a favorable overall trend for the company. Incremental costs scale much better on the Web than in telephone sales, and human capital costs are accordingly lower.
The good news is that PetMed is becoming increasingly profitable. This business is different from human prescription-provider Drugstore.com
There is enormous growth potential for PetMed Express, which is expected (by analysts) to have sales of $135.3 million this year (with about 30% in prescription medications). In 2004, the American Pet Products Manufacturers estimated the U.S. pet medication market at $3 billion, with pet supplies at an additional $5.1 billion.
Being the No.1 pet pharmacy doesn't mean the company has reached mass-merchandising economies of scale. Historically, all the major pharmaceutical manufacturers have declined to sell prescription and non-prescription drugs to PetMed. If the company can establish a direct relationship with manufacturers, it will gain a price advantage on its competition.
The pet-supply market has specialty retailers like Petco
PetMed Express is trading for 29.5 times expected earnings for the fiscal year ending March 2007. That sounds rich, until you realize that analysts expect the company to compound earnings at 35% a year for the next five years. That, in this observer's opinion, is hardly a heady premium for a small company with a No. 1 position in its marketplace and a rock-solid balance sheet.
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Fool contributor W.D. Crotty does not own any shares in the companies mentioned. Assisting W.D. today was Minnie, a teacup poodle, who likes to man the office carpet while her supplier of toys and pet medications earns a living. Click here to see the Motley Fool's disclosure policy.