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The last six months have not been kind to the retailer Pets at home (LSE: PETS). He FTSE 250 Its share plummeted on Wednesday (Nov 27) as disappointing sales through September prompted it to warn about profits.
At 242.3 pence per share, the Pets at Home share price was around 13% lower in mid-week trading. This takes it to its cheapest level since the Covid summer of 2020.
A difficult economic context could continue to challenge the pet care specialist. However, could its new price drop represent an attractive buying opportunity for long-term investors? Here is my verdict.
The market cools
Pets at Home is a leader in the UK pet care market. It's a one-stop shop for everything your furry friend may need, selling food, toys, and even providing medical care through its network of veterinary offices.
Revenue soared after the pandemic as pet adoption rates soared. But despite its strong market position, it has lately fallen victim to weak consumer spending.
Today he stated that “We are operating in an unusually moderate pet retail market.”, and says it expects the pressures to continue in the second half of its financial year.
orientation cut
Comparable sales at its retail operations failed to grow in the six months to September. That's why Pets at Home subsequently cut its profit forecast for the year to March 2025. It now expects only “modest”growth on last year's underlying profit of £132m.
It had previously forecast profits of £144m.
But poor sales aren't Pets at Home's only problem. It also says it expects the measures announced in the Budget to affect its financial results in 2026.
Changes to the national living wage and employer contributions to national insurance are expected to increase costs by £18 million.
Structural progress
It is prudent for the retailer to warn of tough conditions that will persist into March. Inflation appears stiffer than initially expected, while the overall economy remains quite weak.
However, in my opinion, the long-term prospects remain compelling.
Pets at Home certainly remains optimistic. He says that “We are confident that this will be temporary and that growth will return to historical norms with no change to the attractive long-term prospects for the UK pet care market..”
There are good reasons for the retailer to remain optimistic beyond the immediate future. Themes such as pet humanization, market premiumization, and product innovation could drive market growth in the coming years.
Pets at Home is making strategic strides to take advantage of this opportunity as well. Investment in digital continues to deliver impressive results: app-based sales nearly doubled in the first half. It also continues to grow its veterinary care division, adding two new joint venture (JV) practices and seven joint venture extensions between April and September.
Vetcare's comparable sales soared 18.7% in the first half.
To buy or not to buy
Today's drop means Pets at Home's share price now looks cheap from a historical perspective. Its forward price-to-earnings (P/E) ratio is 10.9 times, well below the five-year average of 18.6 times.
Additionally, the company's price-to-book (P/B) ratio has fallen to 1.2 times.
Above 1, Pets at Home continues to trade at a premium to its book value. But the premium is the lowest since the end of 2019.
Despite its current problems, I think Pets at Home is an attractive buy for investors.
