Down 13% today on results, is this FTSE 250 share too cheap to miss?

After slumping to multi-year lows, is FTSE 250 share Pets at Home now an excellent value stock to consider? Royston Wild takes a look.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Image source: Getty Images

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

The past six months haven’t been kind to retailer Pets at Home (LSE:PETS). The FTSE 250 share has tumbled on Wednesday (27 November) as disappointing sales to September prompted it to warn on profits.

At 242.3p per share, Pets at Home’s share price was last around 13% lower in midweek trade. This takes it to its cheapest since the Covid summer of 2020.

Created with Highcharts 11.4.3Pets At Home Group Plc PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.co.uk

A tough economic backcloth could continue to challenge the petcare specialist. However, could its fresh price dive represent an attractive dip-buying opportunity for long-term investors? Here’s my verdict.

Should you invest £1,000 in Associated British Foods right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Associated British Foods made the list?

See the 6 stocks

Market cools

Pets at Home is a leader in the UK petcare market. It’s a one-stop shop for everything your furry friend might need, selling food, toys, and even providing medical care through its network of veterinary surgeries.

Revenues boomed following the pandemic when pet adoption rates soared. But in spite of its strong market position, it’s fallen victim to weak consumer spending more recently.

Today it claimed that “we are operating in an unusually subdued pet retail market,” and says it expects pressures to continue into the second half of its financial year.

Guidance cut

Like-for-like sales at its retail operations failed to grow during the six months to September. And so Pets at Home subsequently cut its profits guidance for the 12 months to March 2025. It now expects only “modest” growth from last year’s underlying profit of £132m.

It had previously forecast profits of £144m.

But poor sales aren’t the only problem for Pets at Home. It also says it expects measures announced in the Budget to bite its bottom line in financial 2026.

Changes to the National Living Wage and employers’ National Insurance Contributions are expected to increase costs by £18m.

Structural progress

It’s prudent for the retailer to warn of tough conditions persisting through to March. Inflation is looking stickier than first expected, while the broader economy remains pretty weak.

Yet the longer-term outlook remains compelling, in my opinion.

Pets at Home certainly remains upbeat. It says that “we are confident this will be temporary, and growth will return to historical norms with the longer-term attractive outlook for the UK pet care market unchanged.”

There’s good reason for the retailer to remain bullish beyond the immediate future. Themes like pet humanisation, market premiumisation, and product innovation could drive market growth in the coming years.

Pets at Home is making strategic progress to exploit this opportunity as well. Investment in digital continues to yield impressive results, with app-based sales almost doubling in the first half. It also continues to grow its veterinary care division, adding two new joint venture (JV) practices and seven JV extensions between April and September.

Like-for-like sales at vetcare ballooned 18.7% in the first half.

To buy or not to buy

Today’s slump means the Pets at Home share price now looks cheap from an historical perspective. Its forward price-to-earnings (P/E) ratio is 10.9 times, well below the five-year average of 18.6 times.

Furthermore, the company’s price-to-book (P/B) ratio has fallen to 1.2 times.

At above 1, Pets at Home continues to trade at a premium to its book value. But the premium is the thinnest it’s been since late 2019.

Pets at Home's P/B ratio
Source: companiesmarketcap.com

Despite its current problems, I believe Pets at Home is an attractive dip buy for investors to consider.

Of course, there are plenty of other passive income opportunities to explore. And these may be even more lucrative:

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

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.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Pets At Home Group Plc. 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.

We think earning passive income has never been easier

Do you like the idea of dividend income?

The prospect of investing in a company just once, then sitting back and watching as it potentially pays a dividend out over and over?

If you’re excited by the thought of regular passive income payments, as well as the potential for significant growth on your initial investment…

Then we think you’ll want to see this report inside Motley Fool Share Advisor — ‘5 Essential Stocks For Passive Income Seekers’.

What’s more, today we’re giving away one of these stock picks, absolutely free!

Get your free passive income stock pick

More on Investing Articles

Investing Articles

Are shares like Tesco a safe haven for investors?

Christopher Ruane sees a lot to like about Tesco shares. But does he see them as a safe heaven in…

Read more »

Young mixed-race woman looking out of the window with a look of consternation on her face
Investing Articles

The 2025 stock market sell-off could be a once-in-a-decade opportunity to build wealth in an ISA

If a long-term investor has cash sitting in an investment ISA, now could be a good time to put some…

Read more »

pensive bearded business man sitting on chair looking out of the window
Investing Articles

Is now a good time to start buying shares?

Stock market turbulence can be alarming, but it can also offer opportunity. Our writer considers whether now could be the…

Read more »

Investing Articles

Hunting for passive income? These falling insurance giants offer 10% yields

The UK insurance sector is typically a good place to look for attractive dividend yields. Dr James Fox details two…

Read more »

Investing Articles

Considering a Stocks and Shares ISA this April? Avoid these mistakes!

When opening a Stocks and Shares ISA for the first time, it's easy to fall foul of some costly mistakes.…

Read more »

Warren Buffett at a Berkshire Hathaway AGM
Investing Articles

With global markets down 10%+ investors should remember this legendary quote from Warren Buffett

Warren Buffett is the greatest investor of all time. And he says that the best time to buy shares is…

Read more »

Investing Articles

I asked ChatGPT for the best safe havens in the FTSE 100 amid Trump’s tariffs 

Our writer isn't convinced by the answers that AI assistant ChatGPT rattled off when asked about solid FTSE 100 defensive…

Read more »

Bus waiting in front of the London Stock Exchange on a sunny day.
Investing Articles

2 world-class shares to consider buying in the market sell-off

Looking for blue-chip shares to buy amid the market chaos? Here are two high-quality businesses that Edward Sheldon sees potential…

Read more »