Should I follow Hargreaves Lansdown investors and buy FTSE 250 stock Pets at Home?

UK investors have been piling into this cheap FTSE 250 share over the last week. Edward Sheldon is wondering if he should follow the crowd.

| 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.

Last Wednesday (27 November), FTSE 250 stock Pets at Home (LSE: PETS) fell a whopping 17%. This led to a lot of buying from investors, with the stock appearing in Hargreaves Lansdown‘s list of most purchased shares for the week.

Should I follow the crowd and buy the petcare stock for my own portfolio? Let’s discuss.

What caused the crash?

The share price crash last week can be attributed to a rather disappointing set of half-year results.

Should you invest £1,000 in Pets At Home Group Plc 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 Pets At Home Group Plc made the list?

See the 6 stocks

For H1 (the 28 weeks ended 10 October), group revenue increased just 1.9% to £789.1m. Meanwhile, revenue from its retail division (which accounts for the bulk of total revenue) only grew 0.1% to £696.3m.

Looking ahead, the company said that it was expecting the pet retail market to remain “unusually subdued” for the rest of the financial year. As a result, it only expects “modest” year-on-year growth in underlying profit before tax for FY25.

It’s worth noting that the H1 results weren’t terrible. One highlight was 18.6% revenue growth from the company’s vet division. Another was a 43% jump in free cash flow. Zooming in on earnings per share, they increased 13.5% to 8.4p.

Overall though, investors were unimpressed.

The bull case

Looking at the stock today, I can definitely see reasons to be bullish.

For starters, the valuation is now quite low. For the financial year ending 30 March 2026, the EPS forecast is 22.8p, so we have a forward-looking price-to-earnings (P/E) ratio of just 10.3 at present.

One person who clearly sees value at that earnings multiple is CEO Lyssa McGowan. On 28 November, she snapped up £100k worth of shares at a price of £2.36 per share.

Secondly, the dividend yield now looks tasty. With analysts expecting a payout of 14p per share next financial year, the yield has risen to around 6%.

Additionally, the company is seeing good growth from its vet division as well as its app. And management expects conditions in the UK pet care market to pick up in the medium term.

The bear case

However, there are also a few issues that concern me.

One is rising costs. Next financial year, the company expects costs to rise by about £18m due to increased National Living Wages and National Insurance contributions and this is likely to hit profits.

Another is competition. These days, I tend to buy my dog food from Amazon. I’ve found that it has a better selection than Pets at Home (and better prices).

A third factor to consider is that the Competition and Markets Authority (CMA) is looking into how vet services are bought and sold amid concerns that pet owners may not be getting a good deal. This adds some uncertainty.

Finally, it’s worth highlighting the long-term share price chart. Over the last 10 years, this stock has hardly gone anywhere.

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

That’s a little worrying, especially when we consider that the global petcare market has exploded over the last decade. To me, it suggests that the company has some flaws.

Should I buy?

Weighing everything up, I’m going to pass on Pets at Home shares for now.

There’s certainly a chance that they could turn out to be a decent investment, however for me, the company does not have enough of a competitive advantage.

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.

Edward Sheldon has positions in Amazon. The Motley Fool UK has recommended Amazon, Hargreaves Lansdown Plc, and Pets At Home Group Plc. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. 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 Dividend Shares

Investing Articles

These FTSE 100 dividend shares just got cheaper, thanks to President Trump!

Investors buying dividend shares can lock in bigger long-term yields when share prices take a tumble. These two just did…

Read more »

Investing Articles

10% dividend yield! Here’s a FTSE 100 share to consider in April for passive income

This FTSE 100 stock just soared past the 10% yield mark, making it a potentially lucrative option for investors targeting…

Read more »

Investing Articles

Here’s how Trump tariffs could hand us some top passive income bargains

As tariff terror grips the stock market, it's time for passive income investors to steel our nerves and look for…

Read more »

Investing Articles

6.8% dividend yield! Consider these 2 ‘secret’ passive income stocks to target a £1,360 payday in 2025

Looking for ways to generate above-average dividend income? These lesser-bought income stocks are worth a close look.

Read more »

Elevated view over city of London skyline
Investing Articles

The M&G dividend yields over 10% — and could get higher!

Christopher Ruane explains why he's upbeat about the long-term outlook for the M&G dividend yield and would happily buy the…

Read more »

Investing Articles

Investors considering HSBC shares could aim for £8,453 a year in passive income from just £5 a day!

A relatively small daily investment in HSBC shares over several years can produce an extraordinary level of annual passive income…

Read more »

Investing Articles

This FTSE 250 share offers a juicy 9.8% yield. Will it last?

This well-known FTSE 250 share has a percentage dividend yield approaching double digits. Should Christopher Ruane add the income share…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

£10,000 invested in BAE Systems shares at Christmas is now worth…

BAE Systems shares have been surging in the FTSE 100 in 2025, driven higher by the wavering US commitment to…

Read more »