On a day where markets are down and some stocks are getting absolutely hammered, Pets At Home (LSE: PETS) is something of an oasis. The share price of the FTSE 250 pet care business is up a stonking 15% following another encouraging update on trading.
Those who had the fortitude to buy a stake in the business back in mid-March would now be sitting on a gain of close to 80%! Is there still time for new investors to get on board? Here’s my take.
FTSE 250 winner!
Back in July, the company reported sales across all parts of its business had bounced back following the easing of lockdown and “normalisation of shopping habits.” The fact procedures at its veterinary operations could now be performed also contributed.
Today, Pets announced the momentum seen in all its channels since reopening in Q1 had continued. As a result of achieving “double-digit” growth in like-for-like sales, management now believes underlying pre-tax profit for the full year (ending late May 2021) will come in “ahead of current market expectations.“
As updates go, I’m not sure existing holders could ask for anything more.
But is it still worth buying?
Given what’s going on in the world and the general nervousness seen in markets, speculating whether this company is worth buying now, however, is tricky.
Shares in Pets At Home were already trading on 27 times earnings before today. That’s expensive for any stock, let alone a retailer. It’s also a mighty price to pay considering the threat of further restrictions due to the spike in coronavirus cases.
As the company itself remarked today: “Covid-19 continues to create a number of material uncertainties around the trading environment, including the risk of a second lockdown.”
Should that second lockdown come, it’s possible we could see a second stock market crash in 2020. If this happens, there’s certainly the potential for the Pets share price to be hammered along with everything else.
After all, highly valued companies will often be the first to be jettisoned from portfolios. Moreover, panicked investors will usually look to sell what they can (i.e liquid FTSE 250 stocks), not what they should.
Resilient sector
For me, ascertaining whether Pet At Home is a great buy really involves asking how long you plan to hold it for. Based on the points above, I’d be tempted to at least pause before reaching for that ‘buy’ button, if it’s only for a few months. These holding periods are for traders, not investors.
That said, those thinking of holding for years rather than months could still do well. As the company itself stated, one of the attractions of the pet care market is its “inherent resilience.” These days, we consider pets as family members and spending on our furry friends has become less discretionary.
Like veterinary services provider CVS Group, I think Pets At Home is a great way of tapping into this trend. Let’s not forget there has also been a boom in pet ownership this year as a consequence of lockdowns. All those new owners will need to shop somewhere.
No investment is free of risk. For those willing to buy and hold, however, I think this FTSE 250 stock could be a great addition to most portfolios. Just be sure to be sufficiently diversified elsewhere first.
