Pets at Home (LSE:PETS) is a FTSE 250 stock that appears to offer a fair bit of value after falling 14% since last week. It’s trading at just 10 times trailing earnings and sports a market-beating 6.6% dividend yield.
Would I be barking mad not to add Pets at Home shares to my ISA portfolio? Let’s dig in.
Struggling to push on
The first thing I notice here is that the pet care retailer has struggled to build shareholder value since going public in 2014. Back then, it listed at 245p per share and was valued at about £1.2bn. Today, it’s trading for around 198p, with a market-cap of just £900m.
Looking at the numbers, revenue was £1.32bn in FY22, with a net profit of just over £90m. For the current fiscal year (FY26), these figures are expected to be £1.45bn and just over £76m. So we’re looking at stagnant growth here, which is a major issue.
On 18 September, the share price cratered when the company announced that FY26 underlying pre-tax profit would be in the £90m-£100m range rather than the previously expected £110m-£120m. CEO Lyssa McGowan left with immediate effect.
Last time I looked at the stock in March, I concluded: “Unfortunately, the economic situation in the UK remains dire and many pet owners are skint. Things aren’t expected to improve anytime soon and there’s not much the company can do about any of this.”
The stock‘s now down 60% in four years — a real dog’s dinner for long-term shareholders.
Stiff competition
All this is disappointing. After all, the UK’s pet population is now estimated at 30m+, and the firm offers premium pet food, accessories, and veterinary care. It even operates grooming salons to tap into the trend of pampered pooches.
Plus, with the loneliness epidemic sadly worsening in the UK, the number of pet owners is set to rise even higher. So the market opportunity is there.
That said, the wider UK retail market remains under pressure right now. And I think supermarkets and Amazon will continue to provide stiff competition for pet food and accessories.
Turnaround potential?
Looking beyond this year, analysts don’t have much growth pencilled in, understandably. It could be a while before there’s a new CEO.
Meanwhile, dividend cover also looks quite thin, and the new CEO may well rebase the payout. So the 6.6% yield might not end up as tasty as it currently appears.
Yet there are some ingredients here for a potential turnaround at some point, I think. The company’s Easy Repeat subscription service for pet essentials continues to grow, locking in recurring revenue and improving customer loyalty. Growing this will be key.
And while the retail operation is struggling, its vet business (which is much more profitable) continues to deliver high-single digit sales growth. It’s on track to open 10 new practices in FY26, as well as 15 extensions. This vet division adds significant weight to the investment case.
Pets at Home says it has a 24% share of a £7.4bn market. In theory — that dangerous word again — I can see that going higher with the right plan and execution.
It’s too early for me to buy the stock, but I’m going to keep an eye on it due to the turnaround potential.
