Americans have been scrimping to get by for the last several months: Cutting corners, clipping coupons, brown-bagging lunch, and so on. American pets, however, have only seen their standard of living increase. Despite the recession, it turns out that Americans have increased their spending on their
pets, from $43.3 billion last year to $45.4 billion this year, according to the American Pets Association.
And this goes beyond your dog’s Derm Care Anti-Bacterial Medicated shampoo ($14.99), or your cat’s argyle sweater ($35), or your dog’s hand-painted blue dress with strawberries ($59.95). We’re talking doggie spas, pet insurance, veterinary bills that make your elective appendectomy look cheap, and things like this German custom-built cat condo ($1,034).
So which companies will profit from people’s peculiar pet preferences? To our mind, this brings to mind another axiom: If you want to strike it rich during a gold rush, invest in picks and shovels. The point: So who services pets?
The first company we think of is PetSmart (PETM) — you’d think that stock would be shooting through the woof, right? At first, it seems the company is barking up the wrong tree. Even though the market’s dog days are starting to turn around, the stock has gone from $35 per share last year to about $21 per share today. (Ok, we'll stop with the pet puns. They're just so doggone tempting!)
But according to this Motley Fool story, PetSmart is actually doing pretty well: earnings were up 4.6 percent last quarter, and sales were up some 5 percent. So even though other companies are trying to creep into the pet market — Amazon (AMZN) and Target (TGT) come to mind — PetSmart is still a player here.
If PetSmart’s numbers frighten you, there are other companies taking advantage of this four-legged friend fervor. PetMed Express (PETS), which sells prescription drugs for Fido and friends, is at around $18, up from $11 a little over a year ago. The company’s ROC (return on capital, which is basically a way to tell how effectively a company is using its money) is a strong 31 percent over the last three years, and they tap into a potentially burgeoning market: The company can undersell vets — who aren’t usually interested in passing along bargains to pet owners — via their 1-800-PETMEDS number.
Then there’s Patterson Companies (PDCO), which makes veterinary supplies. They're at $27 per share, up from below $17 just a few months ago. The Minnesota-based company has seen an increase in sales and gross operating profit over the last four years.
The lesson here: follow the crowds, and right now the crowds are making their pets happy. So maybe you should put your money where your leash is and let Fido guide your finances. Just a thought.
image by Tobyotter
