Is it too late to buy Pets at Home shares?

Can Pets at Home shares push higher? The stock is already trading close to its record high. Here I take a closer look.

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Pets at Home (LSE: PETS) shares are in the limelight. The stock is up 85% over the last 12 months. In fact, it’s now trading close to its all-time high.

So have I missed the boat with Pets at Home shares? I don’t think so. I reckon there’s more room for growth and here I’ll explain why.

An overview

The company is the UK’s leading pet care business. It offers a one-stop shop with everything an owner needs to look after their pet. This includes food, toys, and grooming services.

It also operates a leading small animal veterinary business, with First Opinion practices located both in its stores and in standalone locations.

Pets at Home has over 450 stores and more than 50% of its shops have vet and grooming salons. Customers can also shop online where they can chose from over 9,600 products in its extended range.

Bull case

I’ve been impressed by Pets at Home’s success. And yesterday’s full-year results were no exception. It clearly has been a winner of the pandemic. While many people have been working from home during the coronavirus crisis, they have also decided to own a pet.

In fact, the company estimates a 8% increase in pet ownership over the past year. So what does this mean for the company? Well, its total addressable market has increased, which means that it has a better chance of improving its market share.

What I like is that Pets at Home has a strong brand and a leading position in its industry. The company expects the increase in UK animal owners to offer a £600m customer revenue opportunity over the medium term. This provides a supportive backdrop for the shares to push higher.

The business model is very attractive. The vet clinics and grooming services provide additional sources of revenue. It also offers cross-selling opportunities with the core retail business.

The company has a strong customer database. It has over 6m VIP members and the number of Puppy and Kitten Club memberships is increasing. This should help drive revenue as it can use the data to gain valuable customer insights to drive sales.

Bear case

I’m concerned that the pet market is very fragmented and hence the competition is fierce. Large online players such as Amazon pose a threat to Pets at Home. And given the convenience that services such as Amazon Prime provide, competitors could gain market share.

The FTSE 250 stock is trading close to its record high. I think the market has become accustomed to it delivering positive results. This means that the shares are sensitive to any negative news. Any slowdown or weakness in numbers is likely to hit the stock price.

It is also investing further in digitising the business. Over the next 18 months, the company will spend £20m on its online offering. While this should create a seamless customer experience, it may impact profitability at least in the short term.

My view

I reckon Pets at Home can reap the rewards from the increase in pet ownership during the last year. I’m impressed by what it has achieved so far and the firm has a well-proven track record. I think the stock can push higher and I’d buy Pets at Home shares.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Nadia Yaqub has no position in any of the shares mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool UK owns shares of and has recommended Amazon and recommends the following options: long January 2022 $1920 calls on Amazon and short January 2022 $1940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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