Petsmart
This email was sent to me:
Greg, do you know when Petsmart was founded? I'm looking at some charts online about the price of their shares over the years and I went as far back as 10 years(that's as far back as AOL will let me go without making a custom chart), however, there was a huge decline between '99 and '01 and I didn't know why. What I'm asking is have they been around, been public, for ten years or did they just recently spin off of a larger company in '99? (I guess the dip started in '97 actually) If they spun off of a larger company in '97 or '99 then that would explain why the stock market value of their shares was so low otherwise it seems rather peculiar.
Here's my reply:
Without looking at a chart, I would say that the dip is probably due to the stock market bubble bursting in the same time frame that you mentioned. It was a recession. Heres the deal though....they were making cash when the economy wasn't. People were not spending money on anything except for their mortgages and pets. Look at their earnings. They kept making money.
The stock was undervalued for the longest time because analysts just missed it. They didnt catch it. Its a pet company, who would have thought they were good....now 80% of analysts say to buy it....(I bought at 18 and 25...and probably will again soon).
Sometime around 2001 they revamped their stores and were widely successful in it.
Here's why I like them:
Dominance: They are an oligopoly with Petco...Petco is very strong too, and noone else can enter anytime soon. Pets have become like kids to many people in the last 5 years.
Management: They do everything right...(e.g. revamping their stores, adding VERY high margin services such as pet grooming and instore vets and pet insurance).
Cash Flow: They make a ton of cash, even when the economy wasnt.
I sent a 2nd reply shortly thereafter:
i love PETM....they have almost as much cash as they have total debt....they have substantially more current assets then TOTAL debt.
I dont care that the stock price dropped. Everyone was wrong! Stock price short term (less than 3 years) is more psychological then it is financial.
PETM does everything right! and they are just getting bigger and stronger...I could go on and on about why I think PETM is good. I've been saying all this when I bought them at 18.....(I bought and hyped up cendant back when they were at 11, 1.5 years ago, go see what they're at now....and i want to buy more of them too) Bottomline is I have smoked the hell out of the S&P over the last 7 years....I am a good guesser when it comes to this stuff. .....noone ever listens to me though.
**************UPDATE********************
UPDATE 06/29/04: Well, PETM is down 1.25 (which is 3%) as of right now...so either they are on sale, or everyone is selling based off of my post from last night.
posted by Greg at 9:25 PM
10 Comments:
Looks like PETM dropped based on earnings that were consistantly down. When earnings keep dropping, so does the stock price? How is this anything outside the norm? Also, can we all stop hearing about CD? We get it....great company, stock price will continue to rise.
This comment has been removed by a blog administrator.
Everyone trips every now and then. The question is how do you get up. According to Bloomberg, each Quarter in 2001 they had decreasing EPS. Those were their only decreasing EPS quarters since 96. So what? They tripped (in unison with the economy), their stock price dropped. They got up, revamped their strategy and have been winning the race.
They dominate, have superior management, and generate cash.
Stock prices do not go up and down because Earnings go up and down (see the internet stocks of the 90s). Stock prices go up and down because of investor psychology. There is not a causal relationship there at all.
Its always easy to stand on the sidelines and criticize. My stock performance has destroyed any index you can name. (My mutual fund have beaten the market too...AGTHX). Most of that time was in a recession. I do not care if you chaulk me up for being wrong. I know my performance.
I will continue to talk about CD, PETM, and other companies. It is what I am passionate about.
Give me ideas, not negativism. I don't need friends to try to hold me back.
I was just looking at a simple chart for PETM that showed the decreasing earnings in the time span that the company was down. Just looked like the normal stock dumping when the earnings aren't there. Not that the company is bad, but that seems to be how the market works. I appreciate your passion for CD and PETM, but what other companies can you share with your loyal following that are going to be rising over the next decade.
Why do you remove some comments greg? Are they just dumb one's like this comment and don't warrant time to read?
-Joe
Joe, great idea, I need to find out how.
Anonymous: Those are the only 2 stocks I have right now. If you have any ideas, throw them on here, and I'll check them out...or email me them if you actually are confident that you might know something (which based off of all your comments in this post, I am not confident in you).
If I can find a 3rd or 4th stock that I think is better than PETM or CD then I will buy that too...but why buy one that isn't as good? I'm not looking for regression to the mean here, I'm looking to maximize my returns, and minimize my losses.
Also, find me a chart reader who makes money, and I might listen. The charts people look at don't show dominance, cash flow, and superior mangement. Those are my only 3 criteria.
And once again, stock price short term (less then 3 years) has nothing to do with earnings. Once you understand that, maybe you'll make some good trades.
I'd like to get your opinion on SJM, PG, and JPM just for fun. Take a look at SJM after early 2002 (they aquired Jif and Crisco from PG at that point). PG seems to be making the right aquisitions to grow their business (i.e. Clairol), but I'm not sure about their cash flow. What do you think of JPM and ONE coming together? Seems like a good fit to compete with C.
Can you please review what moves a stock in the short term? Thanks for your time.
-JR
Apparently drewski has figured out Shaquille O'Neal. For those of you who don't know Shaq said, "I'm like the Pythagorean Theorem, no one can figure me out." Yet as can be seen by looking above this post we can all see that drewski has "figured" it out and thus Shaquille O'Neal.
--Tony
Greg looks like you already know how to. Look at the post --->
Greg said...
This post has been removed by the author.
1:02 PM
This is what i was talking about... are you removing comments or is blogger.com doing it?
I know how to remove my own...I haven't had time to figure out how to remove other people's.
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