Is Petco Health And Wellness Company All Bark And No Bite?
When Petco Health And Wellness Company (NASDAQ: WOOF) IPO’d we had high hopes for the company and the stock. Situated within the steadily growing pet care industry it is well-positioned as both a provider of services and an eCommerce portal. That said, a number of factors have arisen over the past few quarters that have the stock stuck in a trading range and going nowhere fast.
The first and possibly most important on a technical basis is insider selling. Insider selling has not been frequent but a large early shareholder sold out a significant portion of shares marking the top of the current trading range. Shareholders under the business name Aggregator LP Scooby sold, in two June transactions, what amounts to 10% of the market cap and right at the highest levels since the IPO. We can’t fault the group for taking profits but we can wish that maybe they’d waited a little longer. Regardless, as it stands now, insiders and large shareholders hold less than 0.05% of the company so future selling will have a much smaller impact.
Institutional activity, however, is a different story. Institutional activity has been net positive since the IPO and pushed ownership up to 64%. That’s a big vote of confidence in the stock and the fundamental story but there are two things to consider. Insider buying has slowed dramatically in the last three quarters while price action moves within its range. The second is that Q3 results were not what the market wanted, we will not be surprised to see some money taken off the table.
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Mixed Results And High Short Interest Drive Petco Lower
Petco delivered mixed results for the 3rd quarter but that alone is not what has shares down more than 10%. The stock was carrying a high short-interest, nearly 20%, going into the report so that has a lot to do with it. Regardless, the $1.44 billion in consolidated revenue is up 14.3% from last year and beat the consensus by 510 basis points. The gain was driven by a 15% increase in comp-store sales, 32% in the two-year stack, offset by store closures. The bad news is in the margin and FCF.
The company reported a sequential increase in the margin but YOY decrease the cut into the bottom line. The GAAP and adjusted earnings both beat the consensus estimates but by smaller margins than they could have. In regard to the free cash flow, free cash flow fell 64% YOY and 30% sequentially due to declining margin but there is another factor in play as well. Some of the margin decline is due to fixed asset investments that should help drive revenue and earnings in future quarters.
Looking forward, the guidance is positive and was increased but there is a cloud hanging over it. While revenue and earnings guidance were both increased to a range above the Marketbeat.com consensus it is just above consensus and suggests this year’s growth has already peaked.
The Technical Outlook: Petco Health And Wellness Begin Move Lower
Shares of Petco Health And Wellness Company fell more than 10% in the wake of the Q3 earnings report and look like they will head lower. The candle formed is long and red indicating strength within the market. It closed above a potential support zone but the indicators suggest weakness is building and downward momentum growing. The stock may find support at $21.25 but, if not, a move down to the bottom of the range near $18.00 is more than likely.
Companies in This Article:
|Company||Current Price||Price Change||Dividend Yield||P/E Ratio||Consensus Rating||Consensus Price Target|
|Petco Health and Wellness (WOOF)||$18.43||-4.2%||N/A||N/A||Hold||$26.00|