The UK stock market may be hitting new all-time highs in 2026, but there are still plenty of cheap stocks for investors to explore right now. And one such potential opportunity that’s recently caught my eye is Pets at Home (LSE:PETS).
The business has been under tremendous pressure in recent years, and management’s recently had to slash dividends almost in half, from 13p per share to just 7.4p.
Obviously, that doesn’t sound like a screaming Buy.
However, underneath all the chaos, some intriguing green shoots have begun to emerge. And if my hunch is correct, we could soon be approaching a critical inflexion point that could not only help the share price bounce back, but also allow dividends to recover as well.
Let’s take a closer look.
Why is Pets at Home so cheap?
As one of the largest pet and vet store chains in the UK, the company seemed to have had a powerful market position a few years ago with monopoly-like characteristics.
So what went wrong? On the retail side of the business, the increasingly tough economic landscape has resulted in many pet owners simply trading down to cheaper lower-margin products. And on the vet side, a regulatory investigation by the Competition and Markets Authority (CMA) has understandably spooked investors.
The retail impact has been laid bare in the group’s latest results, with consumer revenue down 1% and retail underlying pre-tax profit slumping 57.8% to £30.8m. Luckily, its vet business remains in a much stronger position, driving a 5% increase in sales and a 10% jump in underlying earnings, from £75.9m to £83.8m.
Nevertheless, overall earnings were down almost 30%. And yet, the share price actually jumped on the back of these results.
What’s going on?
An incoming turnaround?
The CMA investigation has now concluded. And while it has forced Pets at Home to change its approach, the actual impact appears to be far less severe than what some investors had feared.
That’s obviously a relief. What’s more, with a massive wave of pets adopted during the pandemic, a growing number of these animals are now starting to enter the second half of their life spans. And with that comes higher health and care spending.
Meanwhile, management’s actively trying to fix its retail offer. Price cuts are already helping drive higher volumes as well as improve customer satisfaction. While that does mean retail margins are likely to suffer in the near-term, in the long run, it helps build stronger customer relationships.
So is now the time to consider adding this stock to my portfolio?
What to watch
Following the recent dividend cut, Pets at Home now pays a yield of 3.8%. That’s not bad, but it’s hardly the most lucrative passive income opportunity out there today.
Having said that, if management can continue to scale its vet business and use its retail arm as a glorified onboarding tool, then earnings could soon start to rebound alongside dividends. Therefore, the yield might not be high today, but it has the potential to grow considerably over time.
This obviously comes paired with significant execution and strategic risk. But with early signs of improvement starting to creep into the numbers, and with the cloud of regulatory uncertainty now lifted, those risks might be worth considering.
Should you invest £5,000 in Pets At Home Group Plc right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Pets At Home Group Plc made the list?
Zaven Boyrazian does not hold any positions in the companies mentioned.
