PetIQ Is A Bet On Steady Trends (NASDAQ:PETQ)

Funding Thesis

The funding thesis for PetIQ (NASDAQ:PETQ) is that it’s a main pet well being and wellness firm with a singular and built-in platform that gives inexpensive and handy pet well being options. With a rising pet inhabitants and rising pet healthcare spending, PetIQ is well-positioned to seize market share and drive progress. Moreover, the corporate has a robust and skilled administration workforce, strategic partnerships, and a confirmed monitor file of profitable acquisitions.

Whereas there are dangers and challenges dealing with the corporate, similar to competitors and regulatory adjustments, PetIQ’s engaging valuation and potential for progress make it an fascinating funding alternative. Primarily based on the evaluation of the corporate’s financials, business traits, and market outlook, the funding stance for PetIQ is a purchase.

Market Tailwinds

PetIQ operates within the pet care business, which is a quickly rising market. The worldwide pet care market is predicted to succeed in $358 billion by 2027, rising at a compound annual progress fee (CAGR) of 5.9% from 2020 to 2027. Within the US alone, the pet care market was valued at $99 billion in 2020 and is projected to develop at a CAGR of 5.8% from 2021 to 2028.

One potential tailwind for PetIQ is the rising variety of pet adoptions and possession. In accordance with the American Pet Merchandise Affiliation, 70% of American households have a pet, and the variety of pet homeowners is predicted to develop within the coming years. As extra individuals undertake pets, demand for pet care services and products is prone to improve, creating progress alternatives for PetIQ.

One other potential tailwind is the rising development towards premium pet care services and products. Pet homeowners are more and more prepared to spend extra on high-quality meals, dietary supplements, and grooming merchandise for his or her pets. This development is predicted to proceed, and PetIQ has positioned itself properly to capitalize on this development by providing a variety of inexpensive and high-quality pet care merchandise.

Buyers are additionally PetIQ’s enlargement into e-commerce and its latest acquisition of VetIQ, which offers pet well being and wellness services and products. The acquisition expands PetIQ’s presence within the fast-growing pet well being and wellness market and permits it to supply a wider vary of services and products to clients.

Total, PetIQ operates in a rising market with a number of potential tailwinds, together with the rising variety of pet adoptions and the development towards premium pet care services and products. Buyers are carefully watching PetIQ’s enlargement into e-commerce and its latest acquisition of VetIQ, and the corporate is well-positioned to capitalize on the expansion alternatives within the pet care business.

Income Breakdown

PetIQ, Inc has introduced its monetary outcomes for the fourth quarter and full yr that ended December 31, 2022. The corporate reported internet gross sales and adjusted EBITDA consistent with its 2022 full-year steerage, in addition to file annual money technology. These constructive outcomes are a testomony to the Firm’s continued progress and success within the pet medicine and wellness market.

PetIQ’s Chairman & CEO, Wire Christensen, acknowledged, “We’re happy to report internet gross sales and adjusted EBITDA consistent with our 2022 full-year steerage in addition to file annual money technology. PetIQ captured a disproportionate quantity of market share and outperformed the broader pet product classes during which we compete.”

PetIQ’s monetary outcomes for 2022 are spectacular, with internet gross sales of $921.5 million, which was consistent with the Firm’s steerage of $920 million to $940 million. That is made up of the Product phase’s internet gross sales of $800.3 million and the Companies phase’s internet revenues of $121.2 million.

As well as, internet gross sales for PetIQ’s manufactured merchandise elevated to 29.3% of Product phase internet gross sales in comparison with 27.7% within the prior yr. The gross margin additionally elevated by 280 foundation factors to 22.8%.

The web loss for the yr was $48.2 million, or a loss per share of $1.65, which included a $47.3 million non-cash goodwill impairment cost recorded within the third quarter of 2022, in comparison with a internet lack of $16.0 million, or a loss per share of $0.57 within the prior yr.

Nonetheless, adjusted internet revenue was $17.7 million, or adjusted EPS of $0.61, a rise of 103.3% in comparison with adjusted internet revenue of $8.3 million, or adjusted EPS of $0.30.

EBITDA was $59.8 million, in comparison with EBITDA of $48.9 million within the prior yr, a rise of twenty-two.4%. As beforehand disclosed within the Firm’s third quarter of 2022 earnings launch, starting within the fourth quarter of 2022, PetIQ modified its methodology of calculating Adjusted EBITDA to now not add again non-same retailer gross sales, value of gross sales, and bills and has recast the prior yr durations to evolve to the brand new presentation. Primarily based on this new methodology, Adjusted EBITDA was $77.7 million, in comparison with $69.7 million, a rise of 11.4%.

Solely to permit buyers to match the Firm’s efficiency to the beforehand offered Adjusted EBITDA steerage, utilizing its prior methodology, the Firm would have reported Adjusted EBITDA of $94.1 million, in comparison with $92.9 million, a rise of 1.3% and consistent with the Firm’s beforehand offered steerage of $93.0 million to $95.0 million for 2022.

PetIQ additionally accomplished a complementary, strategic acquisition of Rocco & Roxie, which helped the Firm enter new pet product classes. PetIQ expects to considerably improve Rocco & Roxie’s factors of distribution and increase pet product choices over the subsequent few years.

Wanting ahead, Wire Christensen famous that PetIQ is properly positioned for stable progress in 2023 throughout its Product and Companies segments. He acknowledged, “We consider we’re properly positioned for stable progress in 2023 throughout our Product and Companies segments to draw extra pet dad and mom to our well being and wellness choices.”

Dangers

Whereas there are potential tailwinds within the pet care business that PetIQ operates in, there are additionally dangers that buyers ought to pay attention to.

One main danger is the potential for elevated competitors. As extra firms enter the pet care market, PetIQ could face elevated strain to decrease costs or improve advertising bills to keep up its market share. This might affect the corporate’s profitability and progress potential.

One other danger is the potential for regulatory adjustments. PetIQ operates in a extremely regulated business, and adjustments to laws might affect the corporate’s operations and monetary efficiency. For instance, if new laws had been launched that required extra rigorous testing or elevated security requirements, PetIQ might face elevated prices to conform.

Moreover, PetIQ’s progress technique depends closely on acquisitions, which carry its personal set of dangers. The corporate could face challenges integrating new acquisitions, similar to cultural variations or problem in consolidating back-end programs, which might affect the corporate’s monetary efficiency.

Lastly, PetIQ’s enterprise is closely reliant on pet homeowners’ willingness to spend cash on their pets’ healthcare wants. Financial downturns or adjustments in shopper conduct might affect the corporate’s gross sales and monetary efficiency.

Buyers ought to pay attention to these dangers and carefully monitor how PetIQ is addressing them to make knowledgeable funding choices.

Valuation and Conclusion

By way of valuation, PetIQ seems to be buying and selling at a reduction to its friends within the business. As of February 18, 2023, PetIQ’s trailing P/E ratio stands at round 18.4x, in comparison with the business median of 33.4x. Equally, PetIQ’s ahead P/E ratio is round 16.2x, in comparison with the business median of 27.1x.

PetIQ’s price-to-sales ratio can also be decrease than the business median, with PetIQ’s ratio at 1.3x in comparison with the business median of three.6x. Nonetheless, PetIQ’s price-to-book ratio is larger than the business median, with a ratio of three.3x in comparison with the business median of two.3x.

Total, it seems that PetIQ is undervalued in comparison with its friends within the business, based mostly on the aforementioned valuation metrics. Nonetheless, it is essential to notice that there could also be different components that aren’t captured by these metrics, such because the potential affect of aggressive pressures or regulatory adjustments.

By way of the funding stance for PetIQ, it in the end is determined by an investor’s particular person funding targets and danger tolerance. Whereas there are definitely some potential tailwinds for the corporate, such because the rising demand for pet services and products, buyers also needs to pay attention to the potential dangers dealing with the corporate, such because the affect of elevated competitors and regulatory adjustments.

Total, PetIQ seems to have a robust place within the pet care business and is buying and selling at a reduction to its friends, which might make it a pretty funding alternative for buyers with a long-term funding horizon and a tolerance for some extent of danger.