Investors are always looking for the next momentum stock to invest in. But sometimes, stock price momentum can be nothing but a smokescreen – distracting us from a reality that’s not so bright. Pet Valu Holdings Ltd. (TSX:PET) has seen its shares rise over 50% this year alone.
But this is a momentum stock that has plenty of good reasons why it’s soaring. Strong industry fundamentals and company-specific factors have been building and look like they’re here to stay for the foreseeable future.
Let’s explore.
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The pet industry is booming
The Canadian pet market is in a very favourable spot right now. A growing pet population and a shift in how we see our pets are both fueling the booming pet industry. In fact, it has been estimated that nearly 80% of Canadian households have pets. And these pets are increasingly being treated with the love and care that we only reserve for family members.
In 2023, the pet store industry generated $3.8 billion in revenue. From 2018 to 2023, the industry grew at a compound annual growth rate (CAGR) of 6.3%. Looking ahead, the momentum is likely to continue.
Pet Valu marks its spot
Within the pet industry, Pet Valu stands out for its value offering and expertise. In the five years ended 2024, the company’s financials display the momentum that the business is experiencing. For example, revenue increased 69% to $1.1 billion, which represents a compound annual growth rate (CAGR) of 14%. Also, net income increased 312% to $87 million – for a CAGR of 42.5%.
In its most recent quarter, Pet Valu continued to see this momentum, with strengthening performance that came in at or ahead of expectations. Revenue increased 6% to $280.6 million and earnings per share (EPS) also increased 6% to $0.38.
The secret of Pet Valu’s success
Pet Valu’s success continues to be driven by strong industry fundamentals, with demand for pet products remaining healthy. In response to this strong demand, Pet Value is investing in its square footage and plans to add a total of 40 locations this year alone. The retailer currently has 833 locations.
Success is also being driven by the company’s successful supply chain management, which has been driving efficiencies and cost savings. In mid-July, the company’s newest distribution centre opened. This was Pet Valu’s largest and most complex investment in its history. And it’s adding to the value of its supply chain, driving up efficiencies. For example, better shipping costs, warehouse efficiencies, and management of incremental SKUs are just some of the benefits.
Also, as the pet supply retailer continues to expand its culinary offering, we can expect it to drive continued strong performance. This offering of fresh, balanced meals with human-grade ingredients attracts a high-level customer. These customers spend double what the average customer spends in each shopping trip.
Raising guidance
It comes as no surprise, then, when we hear that management is raising its full-year guidance. Revenue for the full year is expected to come in at $1.18 billion to $1.12 billion, for an 8% to 10% growth rate. Also, EPS is expected to come in at $1.61 to $1.68, for a 4% to 7% growth rate.
Pet Valu shares are currently trading at 23 times this year’s estimated earnings and 20 times next year’s estimated earnings.
The bottom line
Pet Valu’s shares have soared as of late, reflecting the company’s strong fundamentals and strong performance. Looking ahead, the momentum is likely to continue. For these reasons, I view this stock as one of the best retail stocks to invest in on the TSX today.
