Smart Play on Pampered Pets

06/03/2014 8:00 am EST


The pet industry has grown over the last twenty years from being an $8 billion business to being a $33 billion business, observes Russ Kaplan, value investor and editor of Heartland Advisor.

Our latest new recommendation is PetSmart, Inc. (PETM). Although its clientele is “non-human,” over the years humans have become so fond of their pets that they will not blink at spending money to pamper, spoil, and ensure they have the best of care.

Many places offer pet supplies, but PetSmart offers full services for animals. They believe in educating the pet owner. In fact, some pets literally begin their lives at PetSmart.

Among the many services PetSmart offers is dog training, a place to take your pet shopping, grooming, adopting local shelter pets, boarding facilities for when owners are out of town, and, in some stores, there is even a veterinary hospital. In essence, it is a one-stop shopping destination for your pet.

PetSmart is based in Arizona and has 1,335 stores. It has been given an A+ rating by one of the top financial rating services, Value Line.

In addition, its earnings have held up very well during the current economic slowdown. In 2013, return on equity was 38.4%, which is near the top.

Even with its solid financial position, PetSmart is not resting on its laurels. The company is doing such things as adding stores, beefing up its online presence, and adding natural pet foods as part of its inventory.

Led by Gregory Joselwicz, the directors of the company have a long-term perspective, as demonstrated by their 1.7% ownership in the firm.

PetSmart is trading in the low $60 range, along with a small, but growing dividend, which probably makes it unsuitable for investors looking for income.

This is another example of a company that will probably be successful for a long time, because having a family pet or two will always be popular.

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