Thursday, October 8, 2009

I Buy Petsmart (PETM)

Today I bought some Petsmart stock (PETM). This is well outside my fields of expertise, technology and biotechnology. It is the only stock I own outside these fields. But don't take this as a recommendation. I am looking for some diversification and I owned Petsmart in the past, so I did not need to to a lot of research to get up to speed on the company. I am not going to post analyst conference summaries on the stock to my web site, as I do with the technology companies I own or follow.

I originally bought Petsmart on August 5, 2005 at $25.76 per share. I sold it March 21, 2007, for $31.87 per share. Today I bought share for $22.31 per share. Petsmart currently pays a dividend of $0.10 per quarter or $0.40 per year. That works out to a 1.8% dividend at my buy price. According to NASDAQ, it has a trailing P/E ratio of 14.1, or earnings of 7% at my buy price.

Petsmart is a well-run company that has done pretty nicely during the recession compared to other retailers. Also, my wife and I got a puppy, Hugo, last year and I have watched how much of our normally tight-fisted household budget goes to pamper this pet.

The main risks I see for Petsmart are not unusual. There is competition in the pet supplies space, as in every other retail space. There is the danger of a double-dip recession. Also, Petsmart management already gave guidance for Q3 that is not fantastic.

But the main probability sequence is a retail sales recovery in 2010, so I expect to see a gradual upward trend in PETM revenues and then net income; hopefully even in dividends.

Keep diversified!

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