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Every month I try to set aside some money to invest. One FTSE 250 Index The stocks I'm looking at this month are Pets at home group (LSE: PETS).
This is why I would buy some stocks if I could free up some funds to invest.
Caring for our pets
Unfortunately, there are no prizes for guessing what Pets at Home does. In fact, chances are you've visited one of its stores or services, whether you own a pet or not, which is a nod to its wide presence and brand power.
The company offers a wide range of services, from pet food and care to veterinary services. It operates through its retail outlets as well as online, in line with modern shopping methods.
The shares have been on a downward trajectory over the past 12 months, losing 19%. This time last year they were trading at 379p, compared to current levels of 304p. However, I believe this simply gives me a better entry point into quality stocks.
My investment case
Research shows that pet ownership in the UK is at an all-time high. In fact, 57% of UK households now own a pet. Furthermore, Statista reports that pet ownership has been on the rise for years and this upward trajectory is set to continue. I consider this to be good news for Pets At Home, given its market position, brand power and past track record. Profits and returns could continue to grow.
Speaking of profitability, a 4.6% dividend yield helps support my investment case. This passive income opportunity is hard to ignore. However, I understand that dividends are never guaranteed.
Moving forward, the falling share price has provided me with an excellent entry point at the moment. The stock is currently trading at a price-to-earnings ratio of just 13.
Finally, the company has an excellent track record of growth, performance and market dominance. While I understand that past performance is not an indicator of future performance, these are all positive aspects that I use as a basis for building my investment case.
Risks and my verdict
From a bearish perspective, it is worth noting that economic fluctuations can have a negative impact on Pets' earnings as well as investor sentiment. This is one of the reasons I believe the stock has fallen. Consumers are currently struggling with rising living costs and may not be able to afford to buy their beloved pets. The continued economic pressure is something I will be keeping a close eye on.
Another concern of mine for Pets At Home is the emergence of online-only competitors. Changing consumer habits (particularly online shopping) have led to the emergence of new competitors. These disruptors will try to undermine Pets' market dominance and will not have to deal with the overhead costs of large retailers like Pets at Home.
After taking everything into account, I believe the advantages of the investment far outweigh the disadvantages. A dominant market position, continued investment in the business to stay ahead (such as a recent rebrand), as well as an attractive passive income opportunity and a tempting valuation, are the arguments that support my investment.
