Central Garden & Pet On Growth Track: Should You Hold?

A prudent investment decision involves buying stocks that offer solid prospects and selling those that appear risky. Again, at times it is rational to hold certain stocks that have enough potential but are weighed down by tough market conditions. These stocks rally as soon as the market enters into a correction mode. Here we have discussed one such stock, Central Garden & Pet Company (NASDAQ:CENT) , with expected long-term earnings per share growth rate of 10%. The stock has more than doubled over the past one year.

Central Garden & Pet Company is revamping both its Pet and Garden segments. Also, it intends to adopt a balanced approach that encompasses an improvement in revenues and profits through operational efficiency. This helped the company to continue with its positive earnings surprise streak for the seventh consecutive quarter, as it reported second-quarter fiscal 2016 results.

We note that organic growth, value accretive acquisitions such as that of the pet bedding business, and divestment of non-strategic assets have been helping the company to enhance its portfolio, thereby leading to better performance. Additionally, Central Garden & Pet Company intends to gain market share in the home centers, mass market, grocery, specialty pet store and other independent channels.

Being the leading producer of garden and pet supplies products in the U.S. with a diversified portfolio of brands has helped the company develop healthy commercial relationships with retails giants such as Wal-Mart Stores Inc. (NYSE:WMT) , The Home Depot, Inc. (NYSE:HD) and Lowe's Companies, Inc. (NYSE:LOW) .

On the flip side, Central Garden & Pet Company operates in the highly competitive pet and lawn and garden products industry, and any aggressive pricing to gain market share may hurt its margins. Moreover, the company’s customers remain sensitive to macroeconomic factors, which may negatively impact their discretionary spending, and in turn its top and bottom lines.

Given the pros and cons embedded, the stock currently carries a Zacks Rank #3 (Hold).