Intrinsic value of PetMed Express - PETS

Previous Close

$40.19

  Intrinsic Value

$32.45

stock screener

  Rating & Target

hold

-19%

Previous close

$40.19

 
Intrinsic value

$32.45

 
Up/down potential

-19%

 
Rating

hold

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 0.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   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, %
  6.20
  6.08
  5.97
  5.87
  5.79
  5.71
  5.64
  5.57
  5.52
  5.46
  5.42
  5.38
  5.34
  5.31
  5.27
  5.25
  5.22
  5.20
  5.18
  5.16
  5.15
  5.13
  5.12
  5.11
  5.10
  5.09
  5.08
  5.07
  5.06
  5.06
Revenue, $m
  264
  281
  297
  315
  333
  352
  372
  393
  414
  437
  460
  485
  511
  538
  567
  596
  628
  660
  694
  730
  768
  807
  848
  892
  937
  985
  1,035
  1,087
  1,142
  1,200
Variable operating expenses, $m
  171
  181
  192
  203
  215
  227
  240
  254
  267
  282
  297
  313
  330
  347
  366
  385
  405
  426
  448
  471
  496
  521
  548
  576
  605
  636
  668
  702
  738
  775
Fixed operating expenses, $m
  52
  53
  54
  56
  57
  58
  59
  61
  62
  63
  65
  66
  68
  69
  71
  72
  74
  75
  77
  79
  81
  82
  84
  86
  88
  90
  92
  94
  96
  98
Total operating expenses, $m
  223
  234
  246
  259
  272
  285
  299
  315
  329
  345
  362
  379
  398
  416
  437
  457
  479
  501
  525
  550
  577
  603
  632
  662
  693
  726
  760
  796
  834
  873
Operating income, $m
  41
  46
  51
  56
  61
  67
  72
  78
  85
  91
  98
  106
  113
  122
  130
  139
  149
  159
  169
  180
  192
  204
  217
  230
  244
  259
  275
  292
  309
  327
EBITDA, $m
  44
  49
  54
  59
  65
  70
  76
  83
  89
  96
  103
  111
  119
  127
  136
  145
  155
  166
  176
  188
  200
  212
  226
  240
  254
  270
  286
  303
  321
  340
Interest expense (income), $m
  0
  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
  4
  4
Earnings before tax, $m
  41
  46
  51
  56
  61
  66
  72
  78
  84
  91
  98
  105
  113
  121
  129
  138
  147
  157
  167
  178
  190
  202
  214
  228
  242
  256
  272
  288
  306
  324
Tax expense, $m
  11
  12
  14
  15
  16
  18
  19
  21
  23
  24
  26
  28
  30
  33
  35
  37
  40
  42
  45
  48
  51
  54
  58
  61
  65
  69
  73
  78
  82
  87
Net income, $m
  30
  34
  37
  41
  44
  48
  52
  57
  61
  66
  71
  77
  82
  88
  94
  101
  107
  115
  122
  130
  138
  147
  156
  166
  176
  187
  199
  210
  223
  236

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
  77
  82
  86
  91
  97
  102
  108
  114
  120
  127
  134
  141
  149
  156
  165
  173
  182
  192
  202
  212
  223
  235
  247
  259
  272
  286
  301
  316
  332
  349
Adjusted assets (=assets-cash), $m
  77
  82
  86
  91
  97
  102
  108
  114
  120
  127
  134
  141
  149
  156
  165
  173
  182
  192
  202
  212
  223
  235
  247
  259
  272
  286
  301
  316
  332
  349
Revenue / Adjusted assets
  3.429
  3.427
  3.453
  3.462
  3.433
  3.451
  3.444
  3.447
  3.450
  3.441
  3.433
  3.440
  3.430
  3.449
  3.436
  3.445
  3.451
  3.438
  3.436
  3.443
  3.444
  3.434
  3.433
  3.444
  3.445
  3.444
  3.439
  3.440
  3.440
  3.438
Average production assets, $m
  28
  30
  32
  33
  35
  37
  39
  42
  44
  46
  49
  51
  54
  57
  60
  63
  67
  70
  74
  77
  81
  86
  90
  95
  99
  104
  110
  115
  121
  127
Working capital, $m
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  10
  10
  11
  11
  12
  13
  13
  14
  15
  15
  16
  17
  18
  19
  20
  21
  22
  23
  24
Total debt, $m
  1
  2
  3
  5
  6
  8
  9
  11
  12
  14
  16
  18
  20
  22
  24
  27
  29
  32
  34
  37
  40
  43
  46
  50
  53
  57
  61
  65
  69
  74
Total liabilities, $m
  21
  22
  23
  25
  26
  27
  29
  31
  32
  34
  36
  38
  40
  42
  44
  46
  49
  51
  54
  57
  60
  63
  66
  69
  73
  77
  81
  85
  89
  94
Total equity, $m
  56
  60
  63
  67
  71
  75
  79
  84
  88
  93
  98
  103
  109
  115
  121
  127
  134
  140
  148
  155
  163
  172
  181
  190
  199
  210
  220
  231
  243
  255
Total liabilities and equity, $m
  77
  82
  86
  92
  97
  102
  108
  115
  120
  127
  134
  141
  149
  157
  165
  173
  183
  191
  202
  212
  223
  235
  247
  259
  272
  287
  301
  316
  332
  349
Debt-to-equity ratio
  0.010
  0.030
  0.050
  0.070
  0.090
  0.100
  0.120
  0.130
  0.140
  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
  0.260
  0.260
  0.270
  0.270
  0.280
  0.280
  0.280
  0.290
Adjusted equity ratio
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732
  0.732

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  30
  34
  37
  41
  44
  48
  52
  57
  61
  66
  71
  77
  82
  88
  94
  101
  107
  115
  122
  130
  138
  147
  156
  166
  176
  187
  199
  210
  223
  236
Depreciation, amort., depletion, $m
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
  9
  10
  10
  11
  12
  12
  13
Funds from operations, $m
  33
  37
  40
  44
  48
  52
  57
  61
  66
  71
  76
  82
  88
  94
  100
  107
  114
  122
  129
  138
  147
  156
  165
  176
  186
  198
  209
  222
  235
  249
Change in working capital, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
  1
Cash from operations, $m
  33
  36
  40
  44
  48
  52
  56
  61
  65
  70
  76
  81
  87
  93
  100
  106
  113
  121
  129
  137
  146
  155
  165
  175
  185
  197
  208
  221
  234
  248
Maintenance CAPEX, $m
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -9
  -9
  -9
  -10
  -10
  -11
  -12
  -12
New CAPEX, $m
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -2
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -3
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
Cash from investing activities, $m
  -5
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -6
  -8
  -8
  -8
  -8
  -9
  -9
  -9
  -10
  -11
  -11
  -12
  -12
  -13
  -14
  -14
  -15
  -15
  -17
  -18
  -18
Free cash flow, $m
  29
  32
  35
  39
  42
  46
  50
  55
  59
  64
  69
  74
  79
  85
  91
  97
  104
  111
  118
  126
  134
  143
  152
  161
  171
  182
  193
  204
  217
  230
Issuance/(repayment) of debt, $m
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
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  
  1
  1
  1
  1
  1
  1
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  4
  5
Total cash flow (excl. dividends), $m
  30
  33
  36
  40
  44
  48
  52
  56
  61
  65
  70
  76
  81
  87
  93
  99
  106
  113
  121
  129
  137
  146
  155
  165
  175
  185
  197
  208
  221
  234
Retained Cash Flow (-), $m
  -4
  -3
  -4
  -4
  -4
  -4
  -4
  -4
  -5
  -5
  -5
  -5
  -6
  -6
  -6
  -6
  -7
  -7
  -7
  -8
  -8
  -8
  -9
  -9
  -10
  -10
  -11
  -11
  -12
  -12
Prev. year cash balance distribution, $m
  40
  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
  2
  2
  2
  2
  3
  3
  3
  3
  3
  3
  3
  4
  4
  4
  4
  5
  5
  5
  5
  6
  6
  6
  6
  7
  7
  7
  8
  8
  9
  9
Cash available for distribution, $m
  66
  30
  33
  36
  40
  44
  48
  52
  56
  61
  65
  70
  76
  81
  87
  93
  100
  106
  114
  121
  129
  137
  146
  155
  165
  175
  186
  197
  209
  222
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
  63
  27
  29
  30
  31
  32
  32
  32
  32
  32
  31
  30
  29
  27
  26
  24
  22
  20
  17
  15
  13
  11
  10
  8
  6
  5
  4
  3
  2
  2
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 34.4
Price to Sales 3.3
Price to Book 8.9
Price to Tangible Book
Price to Cash Flow 17.6
Price to Free Cash Flow 22.9
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 6.2% 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 64.6%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $51 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 0.8%.

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 10 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 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 $0.8 billion.

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