I must say that Im rather bemused by the markets response to the latest update from retailerPets At Home (LSE: PETS), with shares in the mid-cap sinking over 8% in early trading. Lets take a look at why this happenedand question whether it offers an opportunity for prospective investors.
Overreaction?
Todays Q3 results from the Wilmslow-based business (taking into account trading between 14 October and 5 January) really arent that bad and in my opinion certainly dont warrant such a reaction.Althoughsales from the Merchandise business were flat (at 177.4m), grouprevenue still rose 4.4% (0.1% on a like-for-like basis) to 203.7m. Much of this can be attributed to the excellent growth in service revenue. This rocketed 47.8% (7% on a like-for-like basis) to 26.3m over the reporting period, thanks to a 26.2% rise (to 9.5m) in fee income from the companys vet servicesas well as a contribution from specialist referral centres.
In addition toemphasising that these services were a platform for continuing strong growth, CEO Ian Kellett also reflected on the encouraging performance of the companysonline offering during the period and a positive reaction to its Christmas range. Importantly, thecompany stressed that its FY17 profit outlook remains in line with market expectations.
All this leads to me think that shares in Pets At Home have been oversold this morning. After all, if youre looking for defensive companieslikely to continue bringing in the cash regardless of how the UK exits the EU or Donald Trump behaves, look no further than those operating in this fast-growing, cash-generative market.
While shares in Pets At Home are unlikely to rocket any time soon they started 2017 at a very similar price to where they were in January 2016I think the companys plans to continue opening newsuperstores, vet practices and grooming salons makes sense. Assuming itcan sustain the positive momentum achievedin its service and online divisions, a price-to-earnings ratio (P/E) of 15 feels about right. Should the shares fall further, Pets At Home could start to look like a bargain froma long-term perspective.
Growth star
If you dont mind paying a bit more, I thinkDechra Pharmaceuticals (LSE: DPH), the provider of veterinary products, is another share worthy of further investigation. In a hugely positive periodfor holders, shares in the Northwich-based company have shot up 45% since this time last year. Although some of this years estimated 176% EPS growthwill already be priced-in, demand for the companys products will surely only get stronger given the UKs love offurry companions, meaning that there could be further upside ahead. As many investors come to realise, just because a share has risen strongly isnt to saythat it cant continue doing so.
Any drawbacks? Well, it wont come as a surprise to learn that sharesin Dechra dontcome cheap. Withprice-to-earnings ratios of 25 for 2017 and 21 for 2018, the stock is unlikely to appeal to those dedicated to finding value on the stock market. Although the company can boast manyyears of strong dividend growth often an indicator of a company in rude health the 1.4% yield for 2017 is alsorelatively small and wontbe of interest to those keen on generating income from their investments. Bycomparison, shares in Pets At Home come with a far-more-satisfying 3.4% yield, easily covered by earnings.
Calling all dividend hunters
Regularly receiving and reinvesting dividends can bea sound strategy for building wealth over the long term. If you’re on the lookout for companies offering cracking yields, I strongly encourage you tocheck out another suggestion from the experts at the Motley Fool. They think they’ve found a top income sharethat may have escaped many investors’ notice.
What’s the identity of this mystery company? Click hereto find out and claimyour copy of their report. It’s completely FREE and without obligation.
Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.