Intrinsic value of PetMed Express - PETS

Previous Close

$51.78

  Intrinsic Value

$37.73

stock screener

  Rating & Target

sell

-27%

Previous close

$51.78

 
Intrinsic value

$37.73

 
Up/down potential

-27%

 
Rating

sell

*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

Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Shares outstanding, mln

 

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
  9.80
  9.32
  8.89
  8.50
  8.15
  7.83
  7.55
  7.30
  7.07
  6.86
  6.67
  6.51
  6.36
  6.22
  6.10
  5.99
  5.89
  5.80
  5.72
  5.65
  5.58
  5.53
  5.47
  5.43
  5.38
  5.34
  5.31
  5.28
  5.25
  5.23
Revenue, $m
  249
  273
  299
  325
  353
  382
  412
  443
  475
  509
  544
  580
  618
  657
  698
  740
  785
  831
  879
  929
  982
  1,037
  1,094
  1,154
  1,217
  1,282
  1,351
  1,422
  1,497
  1,576
  1,658
Variable operating expenses, $m
 
  195
  214
  233
  252
  273
  294
  317
  340
  364
  389
  415
  442
  470
  499
  529
  561
  594
  629
  665
  702
  741
  782
  825
  870
  917
  966
  1,017
  1,071
  1,127
  1,186
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
  231
  251
  271
  291
  313
  335
  359
  383
  408
  434
  461
  489
  518
  548
  580
  613
  647
  684
  721
  759
  800
  842
  887
  933
  982
  1,033
  1,085
  1,141
  1,199
  1,259
Operating income, $m
  37
  42
  48
  55
  62
  69
  77
  85
  93
  101
  110
  119
  129
  139
  149
  160
  172
  184
  196
  209
  222
  237
  252
  267
  283
  300
  318
  337
  357
  378
  399
EBITDA, $m
  38
  43
  50
  56
  63
  71
  78
  86
  95
  103
  112
  122
  131
  142
  152
  163
  175
  187
  199
  213
  226
  241
  256
  272
  288
  306
  324
  343
  363
  384
  406
Interest expense (income), $m
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
Earnings before tax, $m
  38
  42
  48
  55
  62
  69
  76
  84
  92
  101
  109
  119
  128
  138
  148
  159
  170
  182
  194
  207
  221
  235
  249
  265
  281
  298
  315
  334
  354
  374
  395
Tax expense, $m
  14
  11
  13
  15
  17
  19
  21
  23
  25
  27
  30
  32
  35
  37
  40
  43
  46
  49
  52
  56
  60
  63
  67
  71
  76
  80
  85
  90
  95
  101
  107
Net income, $m
  24
  31
  35
  40
  45
  50
  56
  61
  67
  73
  80
  87
  93
  101
  108
  116
  124
  133
  142
  151
  161
  171
  182
  193
  205
  217
  230
  244
  258
  273
  289

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
  59
  65
  71
  77
  83
  89
  96
  103
  110
  118
  126
  134
  142
  151
  161
  170
  180
  191
  202
  213
  225
  237
  250
  264
  278
  293
  308
  325
  342
  360
Adjusted assets (=assets-cash), $m
  54
  59
  65
  71
  77
  83
  89
  96
  103
  110
  118
  126
  134
  142
  151
  161
  170
  180
  191
  202
  213
  225
  237
  250
  264
  278
  293
  308
  325
  342
  360
Revenue / Adjusted assets
  4.611
  4.627
  4.600
  4.577
  4.584
  4.602
  4.629
  4.615
  4.612
  4.627
  4.610
  4.603
  4.612
  4.627
  4.623
  4.596
  4.618
  4.617
  4.602
  4.599
  4.610
  4.609
  4.616
  4.616
  4.610
  4.612
  4.611
  4.617
  4.606
  4.608
  4.606
Average production assets, $m
  27
  29
  32
  34
  37
  40
  44
  47
  50
  54
  58
  61
  65
  70
  74
  78
  83
  88
  93
  99
  104
  110
  116
  122
  129
  136
  143
  151
  159
  167
  176
Working capital, $m
  64
  5
  6
  7
  7
  8
  8
  9
  10
  10
  11
  12
  12
  13
  14
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
  26
  27
  28
  30
  32
  33
Total debt, $m
  0
  2
  4
  6
  8
  11
  13
  16
  18
  21
  24
  27
  30
  33
  36
  39
  43
  47
  51
  55
  59
  63
  68
  73
  78
  83
  88
  94
  100
  106
  113
Total liabilities, $m
  19
  22
  24
  26
  28
  31
  33
  36
  38
  41
  44
  47
  50
  53
  56
  59
  63
  67
  71
  75
  79
  83
  88
  93
  98
  103
  108
  114
  120
  126
  133
Total equity, $m
  93
  37
  41
  44
  48
  52
  56
  61
  65
  70
  74
  79
  84
  90
  95
  101
  107
  114
  120
  127
  134
  142
  149
  158
  166
  175
  185
  194
  205
  215
  227
Total liabilities and equity, $m
  112
  59
  65
  70
  76
  83
  89
  97
  103
  111
  118
  126
  134
  143
  151
  160
  170
  181
  191
  202
  213
  225
  237
  251
  264
  278
  293
  308
  325
  341
  360
Debt-to-equity ratio
  0.000
  0.050
  0.100
  0.140
  0.170
  0.200
  0.230
  0.260
  0.280
  0.300
  0.320
  0.330
  0.350
  0.360
  0.380
  0.390
  0.400
  0.410
  0.420
  0.430
  0.440
  0.450
  0.450
  0.460
  0.470
  0.470
  0.480
  0.480
  0.490
  0.490
  0.500
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
  31
  35
  40
  45
  50
  56
  61
  67
  73
  80
  87
  93
  101
  108
  116
  124
  133
  142
  151
  161
  171
  182
  193
  205
  217
  230
  244
  258
  273
  289
Depreciation, amort., depletion, $m
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
Funds from operations, $m
  65
  32
  36
  41
  47
  52
  57
  63
  69
  76
  82
  89
  96
  103
  111
  119
  127
  136
  145
  155
  165
  175
  186
  198
  210
  222
  236
  250
  264
  279
  295
Change in working capital, $m
  18
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  2
  2
  2
Cash from operations, $m
  47
  31
  36
  41
  46
  51
  57
  63
  69
  75
  81
  88
  95
  103
  110
  118
  127
  135
  144
  154
  164
  174
  185
  197
  209
  221
  234
  248
  263
  278
  294
Maintenance CAPEX, $m
  0
  -1
  -1
  -1
  -1
  -1
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
New CAPEX, $m
  -11
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
Cash from investing activities, $m
  -11
  -3
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -7
  -8
  -8
  -8
  -8
  -9
  -10
  -10
  -10
  -10
  -12
  -12
  -12
  -13
  -14
  -14
  -15
Free cash flow, $m
  36
  28
  32
  37
  42
  47
  52
  58
  63
  69
  76
  82
  89
  96
  103
  111
  119
  127
  136
  145
  155
  165
  175
  186
  197
  209
  222
  235
  249
  263
  279
Issuance/(repayment) of debt, $m
  0
  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
  7
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
  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
  7
Total cash flow (excl. dividends), $m
  37
  30
  34
  39
  44
  49
  55
  60
  66
  72
  78
  85
  92
  99
  107
  114
  122
  131
  140
  149
  159
  169
  180
  191
  202
  215
  227
  241
  255
  270
  285
Retained Cash Flow (-), $m
  -10
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -11
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
 
  85
  31
  35
  40
  45
  50
  56
  62
  67
  74
  80
  87
  94
  101
  109
  116
  125
  133
  142
  152
  162
  172
  183
  194
  206
  218
  231
  245
  259
  274
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
 
  82
  28
  31
  33
  35
  37
  38
  38
  39
  39
  38
  37
  36
  34
  32
  30
  27
  25
  22
  19
  17
  14
  12
  10
  8
  6
  5
  4
  3
  2
Current shareholders' claim on cash, %
  100
  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 44.3
Price to Sales 4.3
Price to Book 11.4
Price to Tangible Book
Price to Cash Flow 22.6
Price to Free Cash Flow 29.5
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 9.8% 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 20.754 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 $1.1 billion.

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COMPANY NEWS

▶ PetMed Express At Top End Of Buy Range With Earnings Due   [03:00AM  Investor's Business Daily]
▶ These companies top the list of South Florida's best-performing stocks   [Jan-08-18 08:55AM  American City Business Journals]
▶ 3 Unknown but Amazing Dividend Stocks   [Dec-27-17 09:21AM  Motley Fool]
▶ Invesors May Take a Look at PetMed   [Dec-21-17 10:51AM  GuruFocus.com]
▶ 9 Small-Cap Stocks to Buy for 2018   [Dec-19-17 03:03PM  InvestorPlace]
▶ Bulls Charge Higher; Apple, Financial Stock Try For Breakouts   [Dec-18-17 11:55AM  Investor's Business Daily]
▶ At $45.09, Is It Time To Buy PetMed Express Inc (NASDAQ:PETS)?   [Dec-17-17 05:05PM  Simply Wall St.]
▶ Key Risks Facing PetMed Express in 2017   [07:31AM  Market Realist]
Financial statements of PETS
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