It May Be Time To Get Out Of PetMed Express, Inc We are generally bullish on the petcare segment and eCommerce both but we think it might be wise to trim some of those PetMed Express (NASDAQ: PETS) shares if you already own some.

Competition Hurts PetMed Express

We are generally bullish on the petcare segment and eCommerce both but we think it might be wise to trim some of those PetMed Express (NASDAQ: PETS) shares if you already own some. If not, you might want to join the legions of short-sellers that have this stock pegged for lower prices. At 28.5% and up substantially over the past two months the short-interest is getting pretty high. There is a chance this stock could produce a short-squeeze but we don't see it in the cards. While the company had a pretty good F21 it wasn't fantastic and there is evidence of increasing online competition from the likes of Chewy and virtually every other major retailer with an eCommerce presence.

"The year started out with greater than expected eCommerce demand due to COVID-19, with consumers shifting their purchases to online, which positively impacted our sales for the year, then in the back half of fiscal 2021, veterinarian clinics and retail stores re-opened … " says Menderes Akdag, CEO and president of PetMed Express.

PetMed Express Has Lackluster Quarter

Try as we might to find them, there aren't many positives in the PetMed Express Q4 results, not positive enough to keep share prices up anyway. The $71.68 million in net consolidated revenue is up sequentially but down -3.5% from last year and well off the $96 million record set in the FQ1/CQ2 period of 2020. Worse, looking back over the past few years of revenue history, the roughly $72 million is really just average for a company with highly irregular revenue, and it missed the consensus target by nearly 300 basis points.

The good news is in the full-year data so it is no surprise the company chose to focus on it instead. For the full year, revenue is up 8.8% while net income is up 18% and the number of repeat customers grew by 10%. This suggests that revenue may be more stable in the coming year but we don't think the company will be able to produce YOY growth. The comp in the Q1 period is against the company record and 33% greater than the Q4 take.

Other good news includes margin improvement but not enough to offset the revenue decline and miss. The net gain is worth 126 bps to operating income and drove GAAP EPS of $0.34 or down a penny from last year and $0.06 weaker than forecast. The takeaway is that, while this company has benefited from the pandemic and trends in pet care/eCommerce it is also suffering from the competition and facing a tough year of comps. The business is OK but we are not impressed.

PetMed Express Raises Its Dividend

One of the most attractive features about PetMed Express is the dividend. The company has been paying a relatively high-yielding distribution (about 4% today) and increasing the payout annually for the last 12 years. The latest increase came with the Q4 earnings release and is worth 7% to shareholders. The caveat is the payout ratio, about 75% of earnings, but the balance sheet may mitigate that risk. The company is well-capitalized and has no debt to speak of.

The Technical Outlook: PetMed Express Falls To Support

Shares of PetMed Express fell to support in the wake of the Q4 release and may fall further. The risk for traders now is the support line at $28 which may be able to hold prices up. The indicators show only mild bearish momentum in oversold conditions with price action above support so there is reason to think a bounce or short-covering rally could begin. If not, if the price falls below $28, however, this stock could be in for a big fall. The targets for bottoming in the scenario are near $24, $20 and $16 or 17%, 27% and 45% downside.

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