Institutions See Value In Petco
The price action in Petco (NASDAQ:WOOF) has been ratcheting lower ever since the IPO two years ago. The takeaway, however, is that institutional activity has been net bullish the entire time and the activity is picking up once again.
The price action in the stock hit a new low recently, under the influence of strong short-selling, and the institutions stepped in to buy on the dip. At least four major purchases have been reported so far including Neuberger Berman which owns nearly 1.6% of the company.
This has the total institutional ownership up to 62.5% and growing we think, now that Q1 results are in the bag.
The insider activity has been pretty telling as well. There haven’t been any insider transactions for the last two quarters and the net of activity for the trailing twelve months is bearish but the details are revealing.
The selling was done in Q2 by a single larger shareholder who cashed out on the investment while since then there has only been buying. There have been two insider transactions, one from the CFO and one from the CEO, for a total of $1.1 million in purchases.
The amount isn’t much but it is a factor in favor of higher share prices, as is the 24% short interest. Sooner or later the shorts are going to have to cover and it may be hard for them to find shares to buy.
Petco Health And Wellness Company Has Healthy Quarter
Petco had a good quarter in light of the underperformance posted by Petmed Express (NASDAQ:PETS). The company reported $1.48 billion in revenue for a gain of 4.3% over last year and it beat the Insidertrades.com consensus figure by $0.03 billion or 2.0%.
The revenue was driven by a 5.1% comp, up 33.5% versus 2 years ago, and is accompanied by robust GAAP margin expansion. The GAAP EPS came in at $0.09 or up $0.06 from last year while the adjusted earnings were only flat albeit $0.02 better than expected.
The key takeaway, however, is guidance. The company is only reiterating its guidance for revenue and earnings but in a range that brackets the consensus.
This is important in a world plagued by rising inflation and its impacts on both top and bottom-line results. In our view, Petco Health & Wellness combines the best of brick & mortar and eCommerce and will most likely outperform its own guidance.
The Analysts Are Holding On To Petco Health And Wellness Company
The analysts have been silent about the Q1 results so far but we don’t think there is much to worry about from that direction. The Insidertrades.com consensus rating and price target are down versus last year, but firm since the last earnings release and there is no reason to expect change now.
The consensus price target of the 12 current ratings is $24 or about 60% above the current price action. The target may come down a bit in the near term but, trading at only 16X its earrings with a firm if not favorable outlook, we don’t think it will come down much.
The Technical Outlook: Petco Health And Wellness Is At An Extreme Low
The price action in Petco moved higher in premarket trading, but has since fallen back to the prerelease lows. While price action may come under pressure in the near term, we think it is near or nearing a bottom that could result in short-covering at the very least.
Assuming price action is able to maintain support above the $14.00 level, we see this stock moving sideways for the next quarter or two and possibly retesting resistance at $17.80. If, however, a new low is set and the institutions lose interest, we think this stock could move down another 10% to 20%.
