Shares in pet supplies and veterinary group Pets at Home LON:PETS have dropped nearly 15% to around 234 pence since the company reported results last week, with most analysts taking a hold or negative view on the company despite a strong growth in net income. This had more to do with Pets At Home providing a relatively cautious outlook for the rest of the year than its performance so far.
The headwinds facing the company are a UK Competition Markets Authority investigation into price opacity in the UK veterinary sector, including Pets At Home, and the cost of living crisis, affecting how much money particularly younger pet owners are able to spend. However wealthier owners are proving willing to splash out, not only on premium food but also grooming and premium veterinary care.
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In the third quarter Pets At Home increased revenues by 1.92% to £394.55 million and managed to boost net income of by around 49% year-on-year to £18.8m. Net profit margin rose 45.57% to 4.76% and diluted earnings per share were up by 33.3% to 0.04.
Pets At Home’s vet growth strategy is promising, offering convenience with in-store services and the potential to drive product sales through vet recommendations. While the vet market is fragmented, Pets At Home’s national reach gives them an edge. The challenge lies in raising awareness of these services among consumers.
“The biggest challenge for Pets At Home will be overcoming the perception of being a secondary option for the average consumer. Supermarkets, Amazon, and Zooplus lure shoppers with convenience and low prices. But Pets At Home stands out with expert staff offering personalized advice—something rivals can’t match,” said Alex Doran, an analyst at Third Bridge, an independent research house.
On the upside, nearly 60% of all UK households own pets, a total of 17.2 million, with the trend moving to smaller pets such as rabbits, guinea pigs and hamsters and slightly away from dogs and cats.
Conflicting signals trigger hold recommendation
AI stock analysis service Bridgewise rates Pets At Home a hold saying that in light of its recent financial performance it was unlikely that the company’s stock will substantially outperform the industry benchmark. In late November Pets At Home reported a relatively strong net change in cash, however net capital expenditure came in comparatively weaker.
Historically, the correlation between these mixed results and the likelihood of Pets At Home stock outperforming sector peers is not very high. A strong positive is that the board recommended an interim dividend of 4.7 pence per share, a 4.4% increase on the year payable on 10 January next year. The Pets At Home float is above 90%, which indicates higher liquidity and potentially greater investor interest.
Technical analysis points to a negative trend
Trend Intelligence took a closer look at Pets at Home shares and its medium-term view on the company is a continuation of a strong negative trend. Analysis showed price action operating below the medium length moving average and the Japanese Cloud indicator.
The most recent red candle trades below the yellow medium length moving average. The white shorter length moving average touches the yellow medium length moving average and the most recent red candle trades below the blue shaded Japanese cloud giving a negative signal.
In terms of momentum indicators the green +D* area is below Trend’s red –D*, also providing a negative signal. Trend Intelligence says this give Pets At Homes share an overall 66.7% negative/sell signal, a 16.7% neutral signal and a 16.7% positive/buy signal.
