PetMed Express Stock: Prioritizing Consistency Over Growth

PETS could be a premium selling candidate as earnings approach

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PetMed Express, Inc. (NASDAQ:PETS) is an online pet pharmacy based in the United States, delivering pet medications and other health products for dogs, cats, and horses. At a market cap of $662.8 million, PETS is still a small market cap, but worthy of a closer look as earnings approach.

The company is expected to report earnings on Monday, July 19 before the market opens. PetMed Express has beat earnings expectations on just one of its last four earnings reports. This has resulted in post-earnings dips of 12.7% back in January, and a 17.7% bear gap a year ago in July. For the upcoming report, the options market is pricing in a larger-than-usual post-earnings move of 12%. 

PetMed Express stock is down 2% in 2021, and has been facing off with that year-to-date breakeven level for much of the last six months. As the stock has churned, short sellers have headed for the exits, with short interest down 22% in the two most recent reporting periods. Yet the 4.53 million shares sold short still accounts for 23% of PETS' total available float and six days worth of pent-up buying power, at the stocks average pace of trading.

From a fundamental point of view, PetMed Express stock doesn’t offer a great growth rate or a particularly good deal, which is disappointing given its small market cap. PETS has a relatively high price-earnings ratio of 21.51. Moreover, PetMed Express has only increased revenues by 13% since 2018, and its net income has decreased by 18% over the same period, likely due to a rise in COVID-19 pandemic related expenses.

Nonetheless, PetMed Express stock offers a good dividend yield of 3.72%, which is taken from the stock’s forward dividend of $1.20. PETS has paid out dividends regularly since 2009, making the security of the dividend payments fairly reliable. Furthermore, PetMed Express' dividend has increased by 200% since its first payment.

It's also worth pointing out that PETS ranks low on the Schaeffer's Volatility Scorecard (SVS), with a score of just 17 out of 100. In other words, the security has consistently realized lower volatility than its options have priced in, making the stock a potential premium-selling candidate.

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