PetSmart, Inc. (PETM), whose related competitors include Target Corporation (TGT) and Wal-Mart Stores, Inc. (WMT), reported fourth-quarter earnings earlier in the week. Net income dropped by a penny to 61 cents per share. Total sales went up over 3%, and same-store sales increased 1.5%.
On the surface, Q4 doesn't make you want to rush out and buy the stock, does it? But the per-share profit beat expectations by five pennies, according to data at Earnings.com. Also, Reuters says that the outlook for the full fiscal year is shaping up to be a good one, in terms of both the bottom line and margin expansion. Now, what do you think?
Well, Wall Street clearly is supportive of the company's business model. Shares of the specialty retailer are trading near the 52-week high this afternoon.
People love their animals, and PetSmart is a top brand name in the space. If the economy continues to become a lesser threat to the consumer wallet, then perhaps the amount of money allocated for pet supplies, especially higher-priced ones, will rise.
That's really the big question with a stock like this. You've got to take into account your thoughts on how the macro environment will affect the chain's genre of inventory. Also, what is your perception of the valuation? I myself wouldn't characterize the shares as overly cheap.
I can't, however, ignore the technical strength. The chart shows a company decidedly headed to higher price levels. The momentum is there (at least as of today).
I've got to call PetSmart a trade on pullbacks. The recent performance of the stock is compelling, and with the market happy about the guidance, I feel there is more upside left to the idea. Even so, always remember the risk implied by buying near the 52-week high, and be certain to perform your own due diligence.
Disclosure: I don't own any company mentioned; positions can change without notice.
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