Intrinsic value of PetMed Express - PETS

Previous Close

$26.63

  Intrinsic Value

$71.73

stock screener

  Rating & Target

str. buy

+169%

Previous close

$26.63

 
Intrinsic value

$71.73

 
Up/down potential

+169%

 
Rating

str. buy

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 0001), $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 0.5

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  9.70
  9.23
  8.81
  8.43
  8.08
  7.78
  7.50
  7.25
  7.02
  6.82
  6.64
  6.47
  6.33
  6.19
  6.08
  5.97
  5.87
  5.78
  5.71
  5.63
  5.57
  5.51
  5.46
  5.42
  5.37
  5.34
  5.30
  5.27
  5.25
  5.22
Revenue, $m
  300
  328
  357
  387
  418
  451
  485
  520
  556
  594
  634
  675
  717
  762
  808
  856
  907
  959
  1,014
  1,071
  1,131
  1,193
  1,258
  1,326
  1,398
  1,472
  1,550
  1,632
  1,718
  1,807
Variable operating expenses, $m
  120
  132
  143
  155
  168
  181
  194
  208
  223
  238
  254
  270
  287
  305
  324
  343
  363
  384
  406
  429
  453
  478
  504
  531
  560
  590
  621
  654
  688
  724
Fixed operating expenses, $m
  117
  119
  122
  124
  127
  130
  133
  136
  139
  142
  145
  148
  151
  155
  158
  161
  165
  169
  172
  176
  180
  184
  188
  192
  196
  201
  205
  210
  214
  219
Total operating expenses, $m
  237
  251
  265
  279
  295
  311
  327
  344
  362
  380
  399
  418
  438
  460
  482
  504
  528
  553
  578
  605
  633
  662
  692
  723
  756
  791
  826
  864
  902
  943
Operating income, $m
  63
  77
  92
  108
  124
  140
  158
  176
  195
  214
  235
  256
  279
  302
  326
  352
  378
  406
  435
  466
  498
  531
  566
  603
  641
  682
  724
  768
  815
  864
EBITDA, $m
  66
  80
  95
  111
  127
  144
  161
  180
  199
  219
  240
  262
  284
  308
  333
  358
  385
  413
  443
  474
  506
  540
  576
  613
  652
  693
  736
  781
  828
  878
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  5
  5
  5
  5
Earnings before tax, $m
  63
  77
  92
  107
  123
  140
  157
  175
  194
  213
  234
  255
  277
  300
  325
  350
  376
  404
  433
  463
  495
  528
  563
  599
  637
  677
  719
  764
  810
  859
Tax expense, $m
  17
  21
  25
  29
  33
  38
  42
  47
  52
  58
  63
  69
  75
  81
  88
  94
  102
  109
  117
  125
  134
  142
  152
  162
  172
  183
  194
  206
  219
  232
Net income, $m
  46
  56
  67
  78
  90
  102
  115
  128
  141
  156
  171
  186
  202
  219
  237
  255
  275
  295
  316
  338
  361
  385
  411
  437
  465
  494
  525
  557
  591
  627

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $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
Total assets, $m
  82
  90
  98
  106
  115
  123
  133
  142
  152
  163
  173
  185
  196
  209
  221
  234
  248
  263
  278
  293
  310
  327
  344
  363
  383
  403
  424
  447
  470
  495
Adjusted assets (=assets-cash), $m
  82
  90
  98
  106
  115
  123
  133
  142
  152
  163
  173
  185
  196
  209
  221
  234
  248
  263
  278
  293
  310
  327
  344
  363
  383
  403
  424
  447
  470
  495
Revenue / Adjusted assets
  3.659
  3.644
  3.643
  3.651
  3.635
  3.667
  3.647
  3.662
  3.658
  3.644
  3.665
  3.649
  3.658
  3.646
  3.656
  3.658
  3.657
  3.646
  3.647
  3.655
  3.648
  3.648
  3.657
  3.653
  3.650
  3.653
  3.656
  3.651
  3.655
  3.651
Average production assets, $m
  33
  36
  39
  42
  46
  49
  53
  57
  61
  65
  69
  74
  78
  83
  88
  93
  99
  105
  111
  117
  123
  130
  137
  145
  152
  160
  169
  178
  187
  197
Working capital, $m
  10
  11
  12
  13
  14
  15
  16
  18
  19
  20
  22
  23
  24
  26
  27
  29
  31
  33
  34
  36
  38
  41
  43
  45
  48
  50
  53
  55
  58
  61
Total debt, $m
  2
  4
  6
  8
  10
  12
  15
  17
  20
  22
  25
  28
  31
  34
  37
  41
  44
  48
  52
  56
  60
  64
  69
  73
  78
  84
  89
  95
  101
  107
Total liabilities, $m
  21
  23
  25
  27
  29
  31
  34
  36
  39
  41
  44
  47
  50
  53
  56
  60
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
Total equity, $m
  61
  67
  73
  79
  85
  92
  99
  106
  113
  121
  129
  138
  146
  155
  165
  175
  185
  196
  207
  218
  231
  243
  257
  270
  285
  300
  316
  333
  350
  369
Total liabilities and equity, $m
  82
  90
  98
  106
  114
  123
  133
  142
  152
  162
  173
  185
  196
  208
  221
  235
  248
  263
  278
  293
  310
  326
  345
  363
  383
  403
  424
  447
  470
  495
Debt-to-equity ratio
  0.030
  0.060
  0.080
  0.100
  0.120
  0.130
  0.150
  0.160
  0.170
  0.180
  0.190
  0.200
  0.210
  0.220
  0.230
  0.230
  0.240
  0.240
  0.250
  0.250
  0.260
  0.260
  0.270
  0.270
  0.280
  0.280
  0.280
  0.280
  0.290
  0.290
Adjusted equity ratio
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745
  0.745

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  46
  56
  67
  78
  90
  102
  115
  128
  141
  156
  171
  186
  202
  219
  237
  255
  275
  295
  316
  338
  361
  385
  411
  437
  465
  494
  525
  557
  591
  627
Depreciation, amort., depletion, $m
  2
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  12
  13
  14
Funds from operations, $m
  49
  59
  70
  81
  93
  105
  118
  132
  146
  160
  175
  191
  208
  225
  243
  262
  282
  302
  324
  346
  370
  394
  420
  447
  476
  506
  537
  570
  604
  641
Change in working capital, $m
  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
  3
  3
  3
  3
  3
Cash from operations, $m
  48
  58
  69
  80
  92
  104
  117
  131
  145
  159
  174
  190
  206
  224
  241
  260
  280
  300
  322
  344
  368
  392
  418
  445
  473
  503
  534
  567
  601
  638
Maintenance CAPEX, $m
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
New CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
Cash from investing activities, $m
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -13
  -13
  -14
  -15
  -16
  -16
  -17
  -18
  -19
  -20
  -21
  -21
  -23
Free cash flow, $m
  43
  53
  63
  74
  86
  98
  110
  123
  137
  151
  165
  181
  197
  213
  231
  249
  268
  288
  308
  330
  353
  377
  402
  428
  456
  484
  515
  546
  580
  615
Issuance/(repayment) of debt, $m
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
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
Cash from financing (excl. dividends), $m  
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  4
  5
  5
  5
  5
  5
  6
  6
  6
Total cash flow (excl. dividends), $m
  45
  55
  65
  76
  88
  100
  112
  126
  139
  153
  168
  183
  200
  216
  234
  252
  271
  291
  312
  334
  357
  381
  406
  433
  460
  490
  520
  552
  586
  621
Retained Cash Flow (-), $m
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
  -13
  -13
  -14
  -15
  -15
  -16
  -17
  -17
  -18
Prev. year cash balance distribution, $m
  60
  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
  99
  49
  59
  70
  82
  93
  106
  118
  132
  146
  160
  175
  191
  207
  224
  242
  261
  281
  301
  323
  345
  368
  393
  419
  446
  474
  504
  535
  568
  603
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
  95
  45
  52
  58
  63
  68
  71
  74
  76
  76
  76
  75
  73
  70
  66
  62
  57
  52
  46
  41
  36
  31
  26
  21
  17
  14
  11
  8
  6
  5
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

PetMed Express, Inc. (PetMed Express), doing business as 1800PetMeds, is a pet pharmacy. The Company markets prescription and non-prescription pet medications, and other health products for dogs and cats, direct to the consumer. It offers a selection of products for dogs and cats. Its product line contains approximately 3,000 stock keeping units (SKUS) of pet medications, health products and supplies. Its products include brands of medication, such as Frontline Plus, K9 Advantix II, Advantage II, Heartgard Plus, Sentinel, Revolution and Rimadyl. It also offers additional pet supplies for sale on its Website, which are drop shipped to its customers by third parties. These pet supplies include food, beds, crates, stairs, strollers and other pet supplies. Its products included Non-Prescription Medications (Over the Counter (OTC)) and supplies, and Prescription Medications (Rx). Its customers are located in California, Florida, Texas, New York, Virginia and Georgia, among others.

FINANCIAL RATIOS  of  PetMed Express (PETS)

Valuation Ratios
P/E Ratio 22.8
Price to Sales 2.2
Price to Book 5.9
Price to Tangible Book
Price to Cash Flow 11.6
Price to Free Cash Flow 15.2
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 $273.8 million for the last fiscal year's total revenue generated by PetMed Express. The default revenue input number comes from 0001 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 9.7% 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 40.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $114 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 5.4% 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 10.9%.

Life of production assets of 14.3 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 3.4%. 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 - $115.731 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 20.601 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 $0.5 billion.

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COMPANY NEWS

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▶ PetMed Express Inc Stock Pops on Q4 Earnings Results   [May-07-18 01:40PM  InvestorPlace]
▶ PetMed: Fiscal 4Q Earnings Snapshot   [08:20AM  Associated Press]
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