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Behind the Headlines: PetMed Express Defies Bearish Trend

PetMed Express (PETS) climbs, outperforming the sinking market, after third-quarter earnings news

by Beth Gaston Moon (bgmoon@sir-inc.com) 1/22/2008 1:35 PM

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Appearing in of today's "Behind the Headlines" is Petmed Express (PETS), which is currently one of the best-performing stocks on the Nasdaq Exchange. "Behind the Headlines" is a daily feature available on SchaeffersResearch.com. Every day, we'll focus on the day's action of newsworthy stocks that are generating a lot of attention. By digging into the stock's sentiment and technical backdrop, we hope to shed some light on the securities.

Today's market environment is not for the faint of heart. Very early own, the major averages were poised for disaster, following a massive global sell-off Monday and early today. An emergency intra-meeting rate cut from the Fed brought the federal funds rate down to 3.5% but failed to send the Dow Jones Industrial Average (DJIA) and other indices back into positive territory. At its worst point today, the blue-chip average was more than 450 points lower at a new annual low. At its best, it was down a mere 7 points. Currently, the average is off 133 points. Phew.

Selling is broad today, but there are a few stocks that managed to open in positive territory and stay there. One of these names is PetMed Express, which delivers medications for dogs, cats, and other domesticated members of the animal kingdom. This morning, the company said third-quarter earnings surged 60% on a year-over-year basis, rising to $4.4 million, or 18 cents per share. Sales during the most recent reporting period jumped 19% to $37.3 million.

PetMed Prsident/CEO Menderes Akdag boasted that "We are pleased to report high profitability for the quarter, which can be attributed to strong reorders and our success in leveraging operating expenses." Reorder sales were 28% higher during the quarter at $28.4 million. In other sales news, Internet sales were up 23% at $24.4 million.

The headline earnings-per-share numbers easily topped the Street estimate, while revenue was marginally short of the mark. Analysts were projecting per-share earnings of 14 cents on sales of $37.7 million.

Defying the selling pressure that hit the market right at the opening bell, PETS shares moved higher out of the gate and have continued to advance throughout the trading day. In midday action, the stock is up nearly 16%. PETS has overcome its 10-week moving average and is trying to push above its 80-week trendline. The equity's 10-week has contained all but 1 weekly close since mid-September; the 80-week has been a recent layer of technical resistance.

Intraday chart of PetMed Express for 01/22/2008

Weekly chart of PetMed Express since May 2007 with 10-week and 80-week moving averages

If the stock's strength today manages to follow through, there is the potential for some buying pressure from the wall of worry currently supporting PETS stock. Short interest accounts for 12.5% of the stock's available float, and it would take nearly 14 trading days to dump all of the open shorted positions. If short-covering activity begins to transpire, it could spark a self-perpetuating rally where those who sold the stock short close out their bearish bet by repurchasing the stock, contributing to the buying power behind the shares. Additionally, according to Zacks 4 of the 7 analysts following the stock have named it a "hold," leaving open the possibility of upgrades.

For timely commentary on today's market-moving news from me and my colleagues Andrea, Elizabeth, Jocelynn, Joseph, and Mark, please visit our Schaeffer's Daily Market Blog section throughout the trading day.

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