As investors, we’re taught to always ‘buy low, sell high’. Today however, I’m focusing on a FTSE 250 stock that I’d still be willing to buy even as its share price sits at a record high.
FTSE 250 winner
It didn’t require a crystal ball to know that today’s results from pet products retailer Pets At Home (LSE: PETS) were going to be impressive. Despite the disruption caused by the pandemic, the huge demand for furry (and not so furry) companions over multiple UK lockdowns was a clear boon to the company.
Total revenue grew 7.9% to just over £1.14bn for the year to 25 March. Unsurprisingly, the vast majority of this came from the firm’s retail arm. Here, sales rose 8.7% to top £1bn for the first time.
Elsewhere, the company’s veterinary division also played its part with revenue climbing 1.6% over the year. Like-for-like revenue growth came in at 7.9%.
Things get a little more complicated when we get to the bottom line. While the £87.5m of underlying pre-tax profit was ahead of expectations, it still came in 6.4% lower than the previous year. However, this is after roughly £30m of Covid-related costs and the repayment of almost £29m of business rates relief are taken into account.
The good news didn’t stop there.
Strong outlook
According to the FTSE 250 member, the “strong momentum” seen in the previous financial year has continued into the new one. As such, Pets predicts that underlying pre-tax profit in FY22 will come in between £120m and £130m.
Of course, there are still risks. The potential for new variants of the coronavirus to impact on daily life can’t be dismissed, even if Pets believes it will be able to respond to its customers “with minimal disruption“. As confident as it is of also growing market share and becoming “the best pet care business in the world“, one needs to keep things in perspective. Pet care remains a highly competitive industry. If the company does have an economic moat, it’s most certainly a narrow one.
The fact that the share price hasn’t jumped today also implies that a lot of good news is already priced in. This may bring forth a wave of temporary profit-taking in the near-term.
Defensive market
Despite these potential drawbacks, it’s hard to see how Pets won’t benefit from the strong growth drivers within this industry. The estimated 8% increase in ownership over the pandemic, coupled with the non-discretionary nature of spending on pets and growth in loyalty club registrations and subscriptions, suggests new investors like me could still do well over the medium term.
On top of this, PETS finances are in good order. It had net cash of £1.4m by the end of the last financial year. Strong free cash flow also allowed it to increase the total dividend by 7% to 8p per share. This gives a trailing yield of 1.7% at today’s share price. That won’t be of much interest to income investors. However, it is another indication of just how confident the company is on trading going forward.
The Pets at Home share price has climbed 91% over the last year. Based on today’s positive statement, I think there’s more upside ahead. So, as hard as it can be to buy a stock that’s already very popular, I’d be happy to add this FTSE 250 stock to my portfolio today.
