FTSE 250 incumbent Pets At Home Group (LSE: PETS) is now on my buy list. Here’s why I’m planning on buying some shares as soon as I can.
Catering for our beloved pets
Pets At Home is a one-stop shop for pets. The business operates via physical retail outlets, as well as an online offering. It offers basics such as food and leisure products, as well as grooming and veterinary services too.
Similar to many other FTSE 250 stocks, volatility has impacted the Pets share price. Over a 12-month period, the shares are down 23%, from 378p at this time last year to current levels of 290p.
My investment case
Starting with the bull case, I’m impressed by how the business has grown in years gone by, and how it now dominates a pretty fragmented industry with a 24% market share. Its closest competitors aren’t publicly listed, and don’t have the profile or brand power that Pets does. This could help boost performance, payouts, and investor sentiment.
Next, pet ownership is at all-time highs. This is good news for Pets At Home, considering its multifaceted offering and wide reach. Our beloved pets require the same care, love, and attention we do and this covers essentials such as food and healthcare, and luxuries including grooming and more.
Finally, the fundamentals look good to me. The Pets share price falling has thrown up an opportunity to buy cheaper shares. They’re currently trading on a price-to-earnings ratio of just 12, which looks like great value for money to me.
Plus, a dividend yield of 4.5% would boost my passive income stream. In fact, 63% of earnings are being paid back to investors currently. However, I do understand that dividends are never guaranteed, so this could change.
There are risks that could hamper Pets shares. Firstly, continued macroeconomic volatility could mean consumer spending comes under pressure. This could be bad news for Pets At Home’s performance as consumers may only have the ability to buy essentials such as food and healthcare, and may not splurge on luxuries. This could hurt performance and returns.
The other risk I’ll note is the firm’s debt levels. Current debts are only covered by 14% of cash available at the moment, which isn’t ideal. Plus, debt could be costlier to pay down during times of high interest, like now. This could impact investor returns and growth plans.
Final thoughts
As with all investments, there are pros and cons. In the case of Pets At Home, the rewards outweigh the risks, for me personally.
The investment case looks solid with pet ownership rising, a dominant market share with a wide reach and good brand power. In addition to this, the shares look good value for money and there’s a passive income opportunity too. I’d expect a bit of short-term pain, for many years of gain ahead.
