We recently compiled a list of the 10 Best Penny Stocks To Buy According to the Media. In this article, we are going to take a look at where Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) stands against the other penny stocks.
Penny stocks are those that trade below the price of $5. These stocks represent companies with smaller market capitalization, high risk, and high volatility. Risk-tolerant investors find potential for above-average returns in penny stocks, however, investing in these stocks requires caution and care.
Expected Trends for Small Cap Stocks
On July 17, Chris Retzler, Needham’s small-cap growth portfolio manager, appeared on CNBC where he expressed optimism for the small-cap companies and suggested that we are in a cycle that will prove to be good for many small-cap companies. The Russell 2000 index jumped 3.5% higher on the July 16, hitting the highest levels since January 2022, and was up more than 10% in the previous week. This was one of the biggest rallies investors have seen in the past 4 years.
Retzler believes that small cap stocks have been waiting for a drop in inflation and interest rate cuts. With inflation easing, interest rates are expected to go down as well. He also sees the market broadening, with small companies that have underperformed benefiting from a drop in inflation.
Retzler agrees with Fundstrat’s Tom Lee’s, who sees the Russell 2000 gaining 40% by the end of summer. He believes that the liquidity of small cap companies gives them an edge as it does not take a lot of money to push the stock prices higher, and some expansions by these companies followed by lower interest rates can prove to be good for Russell 2000 companies. We have discussed Tom Lee’s views on how favorable current market conditions are for small-cap companies in 10 Best NASDAQ Penny Stocks To Invest In.
Moreover, Ryan Detrick, who is the Chief Market Strategist at Carson Group also presented his bullish thesis for small and mid-cap companies. He believes that small and mid-cap are going to lead the market in the second half of the year. While addressing the earnings capability of these companies, Detrick said small-cap companies will outperform large-cap companies in 2025 and 2026. As per estimates, S&P 600’s earnings were 4.1% in 2024, whereas S&P 500 earnings were 12.7%. However, moving forward analysts expect S&P 600’s earnings to be at 17.7% in 2025, surpassing estimates of 14.2% for the S&P 500. Detrick believes small-cap stocks now look cheap, economic conditions are favorable, and any interest rate cuts that come along the way will further benefit them.
Now that we’ve discussed what experts think about small caps, let’s now look at the 10 best penny stocks to buy according to financial media.
Our Methodology
To compile our list of the best penny stocks to buy according to media, we aggregated 50 plus penny stocks from financial media websites on the internet. We then selected the top 10 penny stocks that were the most widely held by hedge funds, as of Q1 2024. The list is in ascending order of the number of hedge funds holders in each stock.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A groomer devotedly brushing a fluffy white dog.
Petco Health and Wellness Company, Inc. (NASDAQ:WOOF)
Number of Hedge Fund Holders: 16
Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) started as a pet product retail business in 1965 and went public in 2021, taking encouragement from the increase in pet ownership during the pandemic. Today, the company operates as a one-stop shop for pets and pet owners offering them veterinary care, grooming, training, telehealth, pet products including food, treats, and toys, and pet health insurance services. The company also operates a mobile clinic called Vetco, that brings veterinary services directly to communities. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) provides its services through 1,423 pet care centers in the US and Puerto Rico, 131 pet centers in Mexico through joint venture arrangements, and several websites where customers can shop for products online.
The ability of the company to house veterinary clinics and grooming services in stores to become a one-stop shop for pet owners gives Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) a competitive edge over its e-commerce platform competitors. Additionally, its pet food brands including WholeHearted and Reddy, which provide specialized pet products, allow the company to capitalize on the growing pet care market. According to Mordor Intelligence, the US pet care and services market was valued at $12.21 billion in 2024 and is expected to grow at a CAGR of 3.51% to reach $14.51 billion by 2029.
Although the company is not profitable at the moment and reported a revenue of $1.5 billion in Q1 2024, a 2% decrease year over year, the company reported a loss per share of 4 cents, beating analysts’ expectations by 2 cents. Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) has beat earnings estimates for 5 out of the past 8 quarters and management believes they will be generating positive free cash flow during fiscal 2024. Moreover, if we were to look at the company’s annual report for 2023, its revenue increased 3.6% and the comparable sales increased 1.8% year over year, indicating its ability to capitalize on the growing pet care and services market of the US.
The company is also prioritizing strategic partnerships to increase its reach and market share of pet goods and services. In August 2023, the company expanded its partnership with DoorDash to make Petco’s products available nationally through the DoorDash marketplace. In addition, Petco has also upgraded its website with features such as streamlined pet profiles for all wellness needs for your pet. The new feature helps customers stay up to date for their pet’s needs including vaccinations, grooming appointments and much more.
WOOF is one of the best penny stocks to buy according to media. Not only does the company operate in a growing industry which is expected to reach $ 14 billion by 2029, but it also has a competitive edge of being a one-stop-shop for pet owners. Management is positive about its cost-cutting transformation and believes that it is on track to unlock $150 million in cost savings by 2025. The company was also able to reduce its capital expenditures by 47% year over year during the first quarter and are on track to achieve positive free cash flow during the current year. The stock was held by 16 hedge funds in Q1 2024, with total stakes worth $39.795 million.
Overall WOOF ranks 10th on our list of the best penny stocks to buy according to the media. You can visit 10 Best Penny Stocks To Buy According to the Media to see the other penny stocks that are on hedge funds’ radar. While we acknowledge the potential of WOOF as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than WOOF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.