If you're like most Americans, you probably own a pet and spend hundreds of dollars each year to keep your furry friend happy and healthy. As it turns out, man's best friend can also be an intriguing investment angle. Last year alone, Americans spent $48.3 billion on their pets, including $10.8 billion for pet supplies and medications, according to the American Pet Products Association (APPA). Even more remarkable is the fact that pet spending has nearly tripled since 1994. In fact, the number of households that own a pet has reached an all-time high of 72.9 million, the APPA says.
It's easy to see then how pet care has become a huge business. For instance, the APPA expects pet owners to spend $12.2 billion for veterinary care this year, up from $11 billion last year and $8.2 billion five years ago. More importantly, the pet industry has proven resilient during downturns and economic crises, according to the APPA. This kind of supercharged growth in a recession-proof industry makes a strong case for investing in pet-care companies.
If you're enticed by this pet-spending growth trajectory, I encourage you to take a closer look at PetMed Express (Nasdaq: PETS),which is the United States' largest pet pharmacy, with about 6.1 million customers nationwide. PetMed sells pet medicines directly to consumers through its online pharmacy, 1-800-PetMeds. The company carries flea- and tick-control products, vitamins and joint supplements as well as prescription medicines such as heartworm preventatives, arthritis and diabetes drugs, antibiotics and specialty medicines, among other products.
PetMed used to be a darling of growth-stock investors. It increased sales from just $32 million in 2002 to $231.6 million in 2011, a gigantic improvement of 624%, or a yearly average growth rate of 24.3%. The stock price skyrocketed a whopping 2,000% from $0.73 in 2002 to peak at more than $23 in 2009. Since then, however, PetMed shares have been on the decline and now sit near $10. The main reason for the price drop is PetMed's slowing growth rate, which is largely due to increasing competition from the likes of Amazon (Nasdaq: AMZN) and other online retailers.
The bad news is that consensus analyst estimates suggest the growth curve for PetMed will likely continue to flatten. PetMed's earnings per share (EPS) growth had averaged 28% a year for the past five years, but EPS fell in fiscal 2011.