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NUMBER CRUNCHER

15 pet services stocks: clawing for value Add to ...

Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high net worth clients. michael@wickhaminvestments.com

What are we looking for?

According to the American Pet Products Association, and the Pet Industry Joint Advisory Council of Canada, North American pet owners doled out close to $64-billion in products and services in 2012. With those kinds of numbers, my colleague Sean Pugliese and I thought we should take a closer look at the sector.

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The screen

We sorted our companies based on the market capitalization, from the largest to the smallest.

Cash flow ratios are a good measurement of a company’s value. A high price to cash flow (P/CF) indicates that a firm is trading at a high price relative to its cash flow. A low number is preferred.

Return on invested capital (ROIC) is arguably one of the most reliable performance metrics for spotting quality investments. It is a calculation used to access a company’s efficiency at allocating the capital under its control to profitable investments. It gives a sense as to how well the company is using its money to generate returns. We are looking for a high number.

Return on equity (ROE) shows whether a company is a profit creator or a profit burner, and if it is growing profits without pouring new capital into the business. It indicates how much profit the company generates with the money shareholders have invested. A high number is favoured.

The price-earnings ratio is a measure of a company’s share price compared to its per-share earnings, and generally lower is better.

The three-month earnings revision is the analysts’ consensus estimate of the percentage change in the earnings in the next three months.

What did we find?

Nestlé, which owns the Purina brand, is the largest company on our screen, and along with Procter & Gamble and Colgate-Palmolive claim the overall majority of kibble sales worldwide.

Germany-based Bayer has an extensive pet health division, and Pfizer recently spun off Zoetis, which is a large producer of pet medicine and vaccines.

Petsmart dominates the retail sector with more than 30 per cent of the market share in North America. The company scores fairly well on our screen.

One of the more attractive companies, and the smallest, is Petmed Express. The company markets its prescription and non-prescription pet medications directly to the customer through a 1-800 number.

While Amazon.com may seem like an odd inclusion, the company owns an e-commerce pet store, wag.com, which has over 25,000 products.

Before investing, be sure to contact an investment professional, or conduct further research.

 

Pet services companies, ranked by market capitalization

Company Ticker Recent
Price $
Market
Cap
($-mil)
Nestle -ADR NSRGY-OTC 68.60 221,221.27
Procter & Gamble PG-N 76.02 208,200.56
Amazon.Com Inc. AMZN-Q 319.04 145,764.12
Sanofi -ADR SNY-N 50.50 134,016.93
Bayer AG-Reg BAYN GR 86.28 70,067.29
Colgate-Palmolive CL-N 59.33 55,039.10
Zoetis Inc. ZTS-N 32.05 16,025.00
Henry Schein Inc. HSIC-Q 105.30 9,107.52
Petsmart Inc. PETM-Q 75.90 7,886.60
Patterson Cos. PDCO-Q 40.17 4,229.27

All currencies are in U.S. dollars. Source: Bloomberg and Wickham Investment Counsel Inc.

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