Starbucks Corporation (SBUX), Petmed Express Inc (PETS): A Stock With 43% Upside — Driven By An Extremely Loyal Market

In addition to organic growth, Petmed Express Inc (NASDAQ:PETS) could also be a great takeover target for a large online retailer looking to dominate the pet pharmaceutical market. Wal-Mart Stores, Inc. (NYSE:WMT) has already launched its own online pet pharmacy. But a merger with fellow online heavyweight Amazon.com, Inc. (NASDAQ:AMZN) would have incredible synergy and operational scalability for PetMed — and put a large premium on its shares.

Petmed Express Inc (NASDAQ:PETS)’s strong financial profile — $50 million in cash and equivalents and no long-term debt — will likely enable it to invest in growth and reward shareholders. The led the company to increase its dividend by 13% in its most recent quarter, to a healthy 4.4%.

Risks to Consider: Petmed Express Inc (NASDAQ:PETS) needs to expand its product portfolio in order to cash in on the fast-growing pet supplies market in addition to pharmaceuticals. There is also concern about Wal-Mart’s entry into the pet pharmaceuticals space. Although growth is still strong, larger online retailers pose a threat.

Action to Take –> Trends in pet ownership and spending remain bullish. And Petmed Express Inc (NASDAQ:PETS) is a great way to cash in. In spite of all the good news, shares still look undervalued, trading with a forward price-to-earnings (P/E) ratio of 16, a sharp discount to its peer average of 23. If PetMed carried that same forward P/E of 23, shares would jump to $22, a 43% premium from current levels.

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