Are These Stocks Worth "Howling" Over?
David is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Anyone that knows me personally knows I love animals and everything four-legged. In recent years, a number of pet-focused companies became prominent in the financial markets, we'll examine three (3) of them. The first is PetMed Express (NASDAQ: PETS). As its name suggests, PETS or 1-800 Pet Meds, as advertised on television, caters to pet owners, more specifically as a mail order pet pharmacy. This includes pet medications as well as supplements. Although a good business concept, somewhat surprisingly earnings for the company during the last few years have been hit and miss. Unlike human medications, pet meds, at least at PetMed Express currently only offers a 6.8% margin, which seems low to me. However, the company enjoys several attractive characteristics, possessing no measurable debt whatsoever (rare for a small growing firm) and an impressive dividend of 5.3%. And while PETS' dividend is indeed generous, its yield leads me to wonder if the dividend can it be maintained long-term. Indeed, it could very well be in jeopardy provided competitors such as Costco and Wal-Mart's recent inroads into their niche pharmaceutical market.
The second company we'll examine is VCA Anatech (NASDAQ: WOOF). In some ways, more (demand-side) solid than PETS, VCA Anatech is a diversified animal health care firm specializing in supplying veterinarians diagnostics, internal medicine, oncology as well satisfying general essentially pet consumer needs (e.g. shampoo, soap, boarding services) and accessories such as flea and tick collars. In brief, I think WOOF has a solid business model that should make it more attractive than PETS because the products and services it offers are in some ways more essential to pet health, and as mentioned earlier, competition is far greater in the animal medication market, PetMed Express no longer enjoys the monopoly it once did in this niche segment of its micro sector.
The last stock we'll take a look at it MWI Veterinary Supply (NASDAQ: MWIV). Much like WOOF, MWI Veterinary Supply is a supplier of goods and services to Animal Hospital facilities, so it is very much a direct competitor of WOOF. However, increased competition is a good aspect and should lead to greater long-term efficiencies in the animal health sub sector. MWIV's possesses a few traits which separate it from the pack (no pun intended!), these include a global focus, marketing to the United Kingdom, in addition to the US, but it also focuses on large animals, both equine and commercial (i.e. livestock). I think this focus offer WMIV a competitive advantage over WOOF in terms of its global reach and also due to the nature of commercial animals, unlike pets, being inherently less discretionary in nature.
In sum, upon initial glance animal health care may seem like an easily understood, micro-sector of the economy. However, as we can see, as exemplified by the (above-mentioned) stocks this is anything but the case. Therefore, careful consideration of both the strategic advantages and disadvantages of each company should be given prior to and during investment. By doing so, we can begin to untangle a growing market in the health care sector.
These are just a few! There are even more animal care stocks. While, no stock is a sure thing, each one has its advantages and disadvantages and must be carefully weighed prior and during investment. But some stocks are a lot better quality than others. By examining each opportunity carefully, you'll go a long way toward improving your investing skills and learning how to separate out the most attractive investments, animal health, or otherwise, from the rest.
dmercer1 has no position in any stocks mentioned. The Motley Fool recommends VCA Antech. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!
This article is to be used for educational, research and informational purposes only and does not constitute investment advice. There are no guarantees, expressed or implied, of future positive returns in regards to the subject matter contained herein. Understand the risks inherent in investing before making the decision to invest or consult an investment professional for more information. Reasonable due diligence has been performed in regards to the information in this article. However, the author expressly disclaims any liability for accidental omissions of information or errors in fact