It’s not hard to find love on Valentine’s Day, even in the investing world, though sometimes it’s easy to feel unloved by the markets, particularly by the stocks we trade or invest in. But we all like a feel-good story, so how about this for a segue? Uno the Beagle won the Best in Show at the Westminster Kennel Club just concluded on Wednesday. What’s the big deal, you ask? Well, if you’ve seen Uno, he’s quite a precocious charming lad of three years old, and in a sporting upset, he downed all other dogs for a first, a beagle winning the prestigious Best in Show award. It would be kind of like a team like the New York Giants winning the Super Bowl. Didn’t that happen, too?
So what’s the investing or trading theme in this? There are some interesting demographics here at work. Americans own approximately 200 million pets, or companion animals, mostly dogs and cats. And while the Snoopy-like winner and new champion Uno is a show dog, his popular win reminds of the link to everyday life, as the beagle is a common breed that many have for pets. What the growing popularity of the dog shows—once a sport for blue bloods and the nose-in-the-stratosphere crowd, indicate—is that fervent pet ownership and the devotion we have to this as a culture, continues to grow.
More people, more dogs and cats: In 1950, the U.S. population (human population, that is) was roughly around the 125 million mark. Today, nearly 60 years later, it’s at 300 million and rising. Pet ownership continues to grow as well. One company, Pet Smart (NASDAQ: PETM), which retails everything from food to those chewy toys that are underfoot and squeak when you step on them (usually late at night when you are trying to be quiet) is, for example, a company that does over $4 billion in revenue each year. It has a $3 billion market cap, and had earnings of $185 million in 2007. Although it has seen its earnings and sales go relatively flat recently, due to the softening in the economy as well as the tainted pet food from some manufacturers, it is an industry that is hardly overrun with competition. There are many other makers of pet food, but few with such integrated relative scale as Pet Smart.
Think also of the potential synergies of the Pet Smart business model, which is not merely selling pet food: they have training classes, grooming services, alliances with pet hospitals, and attempt to feature their stores as a complete experience for the pets, and perhaps more importantly, their discriminating owners. The stock has traded from 20.29 to 35.48 in the past year, and has been in the 24 dollar range of late. It’s not a wildly growing industry, at least not like a short term fad industry, but some predictions see a 15-20% steady annual growth in the next five years. As a unique specialty retailer, it fell into the slowdown or recession or economic blues, but many people regard their pets next to their children, so they don’t skimp for long or cut back on that kind of spending long term.
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