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PetMed Express' New Order Sales Disappoint, Competition Rife

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On Mar 23, we issued an updated research report on Pompano Beach, FL-based PetMed Express, Inc. (PETS - Free Report) . The company operating as 1-800-PetMeds, is a leading nationwide pet pharmacy.

In the past three months, PetMed is trading below the Zacks categorized Electronic Commerce industry. Per the last trading price, the company lost 12.2% when compared to the 16.6% gain recorded by the broader industry over the same time frame.

We are also apprehensive about the pressure on margins despite the company’s cost-reduction initiatives. Furthermore, the decline in advertising cost raises concerns.

The company operates in a highly competitive and fragmented pet medications market. PetMed is currently witnessing higher pricing pressure in the over-the-counter market due to increased competition. To address the increasing competition in the flea and tick segment, PetMed has adopted a more aggressive pricing strategy that has affected its gross margin.

Also the acquisition of Novartis’ animal health division by Eli Lilly and Company has posed additional challenges for PetMed in the pet pharmacy industry. The deal has combined two large pet pharmacies in which Eli Lilly has moved to the second position in the animal health market in terms of global revenues. Undoubtedly, this market concentration has created an anti-competitive landscape for PetMed.

In the last four quarters the company saw a turnaround on the back of a more aggressive pricing but new order sales continued to be disappointing..

Management is currently working on issues like limited consumer spending and a change in product mix to lower-priced items, mainly generics. The company is asking veterinarians to prescribe additional brands.

The company is presently trying to implement several strategies to revive its top line. PetMed is working on improving the effectiveness of its campaigns. It has started focusing on advertising efficiency to improve new order sales and shifting sales to higher margin items, including generics, while expanding the product offerings.

Although the company is optimistic about the latest increase in new order sales, the sustainability of this growth is still a matter of concern and accordingly we prefer to remain on the sidelines for the time being until future data is obtained on the same.

Zacks Rank & Key Picks

PetMed currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the medical product sector are Inogen, Inc. (INGN - Free Report) , Bovie Medical Corp. and ResMed, Inc. (RMD - Free Report) . While Inogen sports a Zacks Rank #1 (Strong Buy), Bovie and ResMed carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Inogen gained 85.1% in the last year in comparison to the S&P 500’s gain of 15.2%. The company has a stellar four-quarter positive average earnings surprise of over 49.08%.

Bovie Medical surged 55.9% in the last year in comparison to the S&P 500. It has a four-quarter positive average earnings surprise of 28.7%.

ResMed gained over 27.4% in the past year, better than the S&P 500 mark. It also has a trailing positive average earnings surprise of 0.31%.

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