PetSmart, Inc. (PETM): A Smart Investment to Make Today

Even with these strong competitors, PetSmart is still the leading online provider of pet supplies and information. As a brick and mortar store, PetSmart offers the personal interactions and services that most of us prefer when caring for our pets, and also gives our pets a place to go and feel welcome. I believe they will continue to have a stronghold in this industry.

Financial Growth

PetSmart reported third quarter earnings on Nov. 14, 2012. In this quarter, they recorded earnings per share of $0.75 compared to analyst expectations of $0.63. This is also a 50% increase year-over-year. In the quarter, comparable store sales increase 6.5%, total sales rose 9%, and sales of services grew 8%. Guidance for the full year was raised as management expects total sales to increase 10%-11% for the year.

This pet superstore is expected to earn $3.93 in 2013 and $4.48 in 2014. This represents an 11.6% growth from 2012 and 14% growth from 2013. These growth rates are not as high as the 38% from 2011 to 2012, but with the rate they are going, I expect management to raise expectations in their next report. Fourth quarter earnings are to be released on March 6 and current expectations call for $1.21 per share, a 33% increase year-over-year. With that said, PetSmart has beaten earnings expectations for three straight quarters, so I predict another blowout.

Current Pricing

PetSmart is trading at $62.75 during trading on Feb. 26, which is 13.74% below its 52 week high of $72.75. Their current price-to-earnings ratio is below the industry average and their operating margin is higher. This is odd, but forms a great opportunity for investors. They pay out $0.66 annually, representing a yield of 1.05%. This is not a high yield, but any dividend is a great dividend if the company has solid growth like this one.

The Foolish Bottom Line

Americans spend over $50 billion annually on their pets, and this number continues to grow. Forbes has said that 92% of people spent the same amount or more on their pets during the recent recession, which means that not only is the industry growing, but it is recession proof. PetSmart is the perfect way to play the growth in this industry, and it is for this reason that I am initiating an outperform call on CAPS. I believe this stock will test its 52 week high in the very near future and set new highs later this year. PetSmart is a stock I want to BUY.

The article A Smart Investment to Make Today originally appeared on Fool.com and is written by Joseph Solitro.

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