The broader Canadian market has encountered turbulence in recent weeks. Moreover, the recent uptick in inflation has some experts and analysts warning of a recession. That might make it difficult for a bull market to break out.
Despite the bad news, I’m looking to a red-hot industry and market to target in the late summer of 2023. Better yet, Pet Valu (TSX: PET) is the perfect growth stock to snatch up in the pet foods and accessories space. Today, I want to explore the growth potential of the pet industry and discuss why Pet Valu is still cheap. Let’s dive in!
Here’s why investors should be excited about the pet market in 2023 and beyond!
Adoption of pets and overall spending on pets saw significant growth since the COVID-19 pandemic. According to Numerator, pet owners have increased their spending on all pet products since pandemic restrictions were loosened considerably in 2021 and 2022. Moreover, ResearchAndMarkets conducted a survey that saw 65% of Canadian pet owners reporting higher spending on pet products than they used to.
Grand View Research recently valued the global pet food market at US$99.1 billion in 2022. The same report projects that this market will deliver a compound annual growth rate (CAGR) of 4.3% from 2023 through to 2030. Fortune Business Insights also predicted that this market would post a CAGR of 5.1% from 2022 through to 2029, growing from US$115 billion in 2022 to US$163 billion by the end of the forecast period.
How has Pet Valu stock performed over the past year?
Shares of Pet Valu have dropped 11% month over month as of early afternoon trading on Thursday, August 17. Meanwhile, the growth stock has plunged 31% so far in 2023. Its shares have declined 26% in the year-over-year period. Investors can see more of its past performances with the interactive price chart below.
Should investors be pleased with the company’s recent earnings?
This company released its second-quarter (Q2) fiscal 2023 earnings on August 8. Pet Valu delivered system-wide sales of $343 million — up 10% compared to the previous year. Meanwhile, revenue climbed 12% year over year to $256 million. Adjusted net income came in at $26.3 million, or $0.36 per diluted share — down from $27.9 million, or $0.39 per diluted share, in Q2 fiscal 2022.
EBITDA stands for earnings before interest, taxes, depreciation, and amortization. This measure aims to give a clearer picture of a company’s profitability. Pet Valu reported adjusted EBITDA of $53.8 million in Q2 2023 — up 3.9% compared to the prior year.
Pet Valu opened seven new stores in Q2, which brings the company’s total brick-and-mortar locations to 758 across the network. Looking ahead to the second half of fiscal 2023, the company is projecting revenue between $1.05 billion and $1.07 billion. Meanwhile, it expects same-store sales growth between 7% and 10% and between 40 and 50 new store openings across the country.
Why Pet Valu stock is a great value pick right now
Shares of this growth stock currently possess a favourable price-to-earnings ratio of 20. The Relative Strength Index (RSI) is a technical indicator that measures the price momentum of a given security. Pet Valu last had an RSI of 28, which puts this growth stock in technically oversold territory at the time of this writing. Moreover, Pet Valu offers a quarterly dividend of $0.10 per share. That represents a modest 1.5% yield.
