Intrinsic value of PetMed Express - PETS

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$34.53

  Intrinsic Value

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  Rating & Target

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  Value-price divergence*

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Previous close

$34.53

 
Intrinsic value

$53.29

 
Up/down potential

+54%

 
Rating

str. buy

 
Value-price divergence* premium content

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*Intrinsic value change (in %) minus stock price change (in %) in the past 12 months.

We calculate the intrinsic value of PETS stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 2017), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 0.7

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
2017(a)
   2018
   2019
   2020
   2021
   2022
   2023
   2024
   2025
   2026
   2027
   2028
   2029
   2030
   2031
   2032
   2033
   2034
   2035
   2036
   2037
   2038
   2039
   2040
   2041
   2042
   2043
   2044
   2045
   2046
   2047

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  5.96
  14.50
  13.55
  12.70
  11.93
  11.23
  10.61
  10.05
  9.54
  9.09
  8.68
  8.31
  7.98
  7.68
  7.41
  7.17
  6.96
  6.76
  6.58
  6.43
  6.28
  6.15
  6.04
  5.94
  5.84
  5.76
  5.68
  5.61
  5.55
  5.50
  5.45
Revenue, $m
  249
  285
  324
  365
  408
  454
  502
  553
  606
  661
  718
  778
  840
  904
  971
  1,041
  1,113
  1,189
  1,267
  1,348
  1,433
  1,521
  1,613
  1,709
  1,809
  1,913
  2,022
  2,135
  2,254
  2,378
  2,507
Variable operating expenses, $m
 
  204
  231
  261
  292
  325
  359
  395
  433
  472
  513
  556
  600
  647
  695
  744
  796
  850
  906
  964
  1,025
  1,088
  1,154
  1,222
  1,293
  1,368
  1,446
  1,527
  1,611
  1,700
  1,793
Fixed operating expenses, $m
 
  36
  37
  38
  39
  40
  41
  42
  43
  44
  45
  46
  47
  48
  49
  51
  52
  53
  55
  56
  57
  59
  60
  62
  63
  65
  67
  68
  70
  72
  73
Total operating expenses, $m
  212
  240
  268
  299
  331
  365
  400
  437
  476
  516
  558
  602
  647
  695
  744
  795
  848
  903
  961
  1,020
  1,082
  1,147
  1,214
  1,284
  1,356
  1,433
  1,513
  1,595
  1,681
  1,772
  1,866
Operating income, $m
  37
  45
  55
  66
  78
  90
  103
  116
  130
  145
  160
  176
  192
  209
  227
  246
  265
  286
  307
  328
  351
  375
  400
  425
  452
  480
  510
  540
  572
  606
  641
EBITDA, $m
  38
  47
  57
  68
  79
  92
  105
  118
  132
  147
  163
  179
  196
  213
  231
  250
  270
  290
  312
  334
  357
  381
  406
  432
  459
  488
  518
  549
  581
  616
  651
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
Earnings before tax, $m
  38
  45
  55
  66
  77
  89
  102
  115
  129
  144
  159
  174
  191
  208
  226
  244
  263
  283
  304
  326
  348
  371
  396
  421
  448
  476
  505
  535
  567
  600
  635
Tax expense, $m
  14
  12
  15
  18
  21
  24
  28
  31
  35
  39
  43
  47
  52
  56
  61
  66
  71
  76
  82
  88
  94
  100
  107
  114
  121
  129
  136
  145
  153
  162
  171
Net income, $m
  24
  33
  40
  48
  57
  65
  74
  84
  94
  105
  116
  127
  139
  152
  165
  178
  192
  207
  222
  238
  254
  271
  289
  308
  327
  347
  369
  391
  414
  438
  464

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  59
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  113
  62
  70
  79
  89
  99
  109
  120
  131
  143
  156
  169
  182
  196
  211
  226
  241
  258
  275
  292
  311
  330
  350
  371
  392
  415
  438
  463
  489
  516
  544
Adjusted assets (=assets-cash), $m
  54
  62
  70
  79
  89
  99
  109
  120
  131
  143
  156
  169
  182
  196
  211
  226
  241
  258
  275
  292
  311
  330
  350
  371
  392
  415
  438
  463
  489
  516
  544
Revenue / Adjusted assets
  4.611
  4.597
  4.629
  4.620
  4.584
  4.586
  4.606
  4.608
  4.626
  4.622
  4.603
  4.604
  4.615
  4.612
  4.602
  4.606
  4.618
  4.609
  4.607
  4.616
  4.608
  4.609
  4.609
  4.606
  4.615
  4.610
  4.616
  4.611
  4.609
  4.609
  4.608
Average production assets, $m
  27
  30
  34
  39
  43
  48
  53
  59
  64
  70
  76
  82
  89
  96
  103
  110
  118
  126
  134
  143
  152
  161
  171
  181
  192
  203
  214
  226
  239
  252
  266
Working capital, $m
  64
  6
  6
  7
  8
  9
  10
  11
  12
  13
  14
  16
  17
  18
  19
  21
  22
  24
  25
  27
  29
  30
  32
  34
  36
  38
  40
  43
  45
  48
  50
Total debt, $m
  0
  3
  6
  9
  13
  16
  20
  24
  29
  33
  38
  42
  47
  53
  58
  64
  69
  75
  82
  88
  95
  102
  109
  117
  125
  134
  142
  151
  161
  171
  181
Total liabilities, $m
  19
  23
  26
  29
  33
  36
  40
  44
  49
  53
  58
  62
  67
  73
  78
  84
  89
  95
  102
  108
  115
  122
  129
  137
  145
  154
  162
  171
  181
  191
  201
Total equity, $m
  93
  39
  44
  50
  56
  62
  69
  76
  83
  90
  98
  106
  115
  124
  133
  142
  152
  162
  173
  184
  196
  208
  220
  234
  247
  261
  276
  292
  308
  325
  343
Total liabilities and equity, $m
  112
  62
  70
  79
  89
  98
  109
  120
  132
  143
  156
  168
  182
  197
  211
  226
  241
  257
  275
  292
  311
  330
  349
  371
  392
  415
  438
  463
  489
  516
  544
Debt-to-equity ratio
  0.000
  0.070
  0.140
  0.190
  0.230
  0.270
  0.300
  0.320
  0.350
  0.370
  0.380
  0.400
  0.410
  0.430
  0.440
  0.450
  0.460
  0.460
  0.470
  0.480
  0.490
  0.490
  0.500
  0.500
  0.510
  0.510
  0.510
  0.520
  0.520
  0.530
  0.530
Adjusted equity ratio
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630
  0.630

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  24
  33
  40
  48
  57
  65
  74
  84
  94
  105
  116
  127
  139
  152
  165
  178
  192
  207
  222
  238
  254
  271
  289
  308
  327
  347
  369
  391
  414
  438
  464
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  2
  2
  2
  2
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  6
  6
  6
  7
  7
  8
  8
  9
  9
  10
  10
Funds from operations, $m
  65
  34
  42
  50
  58
  67
  76
  86
  97
  107
  119
  130
  143
  155
  169
  182
  197
  211
  227
  243
  260
  277
  296
  315
  334
  355
  377
  399
  423
  448
  474
Change in working capital, $m
  18
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
Cash from operations, $m
  47
  38
  41
  49
  57
  66
  76
  85
  96
  106
  118
  129
  141
  154
  167
  181
  195
  210
  225
  241
  258
  276
  294
  313
  332
  353
  375
  397
  421
  445
  471
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -9
  -9
  -10
New CAPEX, $m
  -11
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
Cash from investing activities, $m
  -11
  -5
  -5
  -5
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -16
  -16
  -18
  -18
  -20
  -20
  -22
  -22
  -24
Free cash flow, $m
  36
  33
  36
  43
  51
  60
  69
  78
  88
  98
  109
  120
  132
  144
  156
  170
  183
  197
  212
  228
  244
  260
  278
  296
  315
  335
  355
  377
  400
  423
  448
Issuance/(repayment) of debt, $m
  0
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  0
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  7
  8
  8
  8
  9
  9
  10
  10
  10
Total cash flow (excl. dividends), $m
  37
  36
  39
  47
  55
  63
  72
  82
  92
  103
  113
  125
  137
  149
  162
  175
  189
  204
  219
  234
  251
  268
  285
  304
  323
  343
  364
  386
  409
  433
  458
Retained Cash Flow (-), $m
  -10
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -14
  -15
  -16
  -16
  -17
  -18
Prev. year cash balance distribution, $m
 
  59
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
 
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
 
  90
  34
  41
  49
  57
  66
  75
  85
  95
  106
  117
  128
  140
  153
  166
  179
  193
  208
  223
  239
  255
  273
  291
  309
  329
  349
  371
  393
  416
  441
Discount rate, %
 
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
 
  87
  31
  36
  40
  44
  48
  51
  53
  55
  55
  55
  55
  53
  51
  49
  46
  42
  38
  34
  30
  26
  23
  19
  16
  13
  10
  8
  6
  5
  3
Current shareholders' claim on cash, %
  100
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
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PetMed Express, Inc. and its subsidiaries, doing business as 1-800-PetMeds, operates as a pet pharmacy in the United States. The company markets prescription and non-prescription pet medications, health products, and supplies for dogs and cats to retail customers. It provides non-prescription medications and supplies, such as flea and tick control products, bone and joint care products, vitamins, treats, nutritional supplements, hygiene products, and supplies; and prescription medications, including heartworm preventatives, flea and tick preventatives, arthritis, thyroid, diabetes, pain medications, antibiotics, and other specialty medications, as well as generic substitutes. The company also sells food, beds, crates, stairs, strollers, and other pet supplies through its Website. It markets its products through Internet; telephone contact center; and direct mail/print through 1-800-PetMeds catalogs, brochures, and postcards under various brands, including Frontline Plus, K9 Advantix II, Advantage II, Heartgard Plus, Sentinel, Revolution, and Rimadyl. PetMed Express, Inc. was founded in 1996 and is headquartered in Pompano Beach, Florida.

FINANCIAL RATIOS  of  PetMed Express (PETS)

Valuation Ratios
P/E Ratio 29.5
Price to Sales 2.8
Price to Book 7.6
Price to Tangible Book
Price to Cash Flow 15.1
Price to Free Cash Flow 19.7
Growth Rates
Sales Growth Rate 6%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate -45%
Cap. Spend. - 3 Yr. Gr. Rate NaN%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 0%
Total Debt to Equity 0%
Interest Coverage 0
Management Effectiveness
Return On Assets 23.6%
Ret/ On Assets - 3 Yr. Avg. 23%
Return On Total Capital 27.3%
Ret/ On T. Cap. - 3 Yr. Avg. 25.8%
Return On Equity 27.3%
Return On Equity - 3 Yr. Avg. 25.8%
Asset Turnover 2.5
Profitability Ratios
Gross Margin 31.7%
Gross Margin - 3 Yr. Avg. 32.4%
EBITDA Margin 15.7%
EBITDA Margin - 3 Yr. Avg. 14.3%
Operating Margin 14.9%
Oper. Margin - 3 Yr. Avg. 13.6%
Pre-Tax Margin 15.3%
Pre-Tax Margin - 3 Yr. Avg. 13.8%
Net Profit Margin 9.6%
Net Profit Margin - 3 Yr. Avg. 8.7%
Effective Tax Rate 36.8%
Eff/ Tax Rate - 3 Yr. Avg. 37.5%
Payout Ratio 66.7%

PETS stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the PETS stock intrinsic value calculation we used $249 million for the last fiscal year's total revenue generated by PetMed Express. The default revenue input number comes from 2017 income statement of PetMed Express. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our PETS stock valuation model: a) initial revenue growth rate of 14.5% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for PETS is calculated based on our internal credit rating of PetMed Express, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of PetMed Express.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of PETS stock the variable cost ratio is equal to 71.5%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $35 million in the base year in the intrinsic value calculation for PETS stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 3.5% for PetMed Express.

Corporate tax rate of 27% is the nominal tax rate for PetMed Express. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the PETS stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for PETS are equal to 10.6%.

Life of production assets of 26.5 years is the average useful life of capital assets used in PetMed Express operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for PETS is equal to 2%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $93 million for PetMed Express - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 20.424 million for PetMed Express is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of PetMed Express at the current share price and the inputted number of shares is $0.7 billion.


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COMPANY NEWS

▶ ETFs with exposure to PetMed Express, Inc. : May 25, 2017   [May-25-17 12:46PM  Capital Cube]
▶ 2 Top Dividend Stocks That Could Double   [May-15-17 03:28PM  Motley Fool]
▶ Investors Loving This Stock Like People Love Their Pets   [11:20AM  Investor's Business Daily]
▶ Why Petmed Express Inc's Shares Popped 26% Today   [May-08-17 04:00PM  Motley Fool]
▶ PetMed beats Street 4Q forecasts   [08:14AM  Associated Press]
▶ Is Petmed Express Inc (PETS) Going to Burn Investors?   [Dec-10-16 05:43PM  at Insider Monkey]
Stock chart of PETS Financial statements of PETS Annual reports of PETS
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