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Each month I try to put aside money to invest. One FTSE 250 stock I'm looking up this month Group of Pets at Home (LSE: ANIMALS).
Here's why I would buy some stocks if I could free up some funds to invest.
Caring for pets
Unfortunately, there are no prizes for guessing what Pets are doing. In fact, you've likely come across one of its stores or services, whether you're a pet owner or not, which is a nod to its vast presence and brand power.
The business offers a wide range of services from pet care to veterinary services. It operates through its stores, as well as online, in line with modern shopping methods.
Shares have been on a low over the past 12 months, losing 19%. This time last year, they were trading at 379p, compared to current levels of 304p. However, I believe this just gives me a better entry point to pick up quality stocks.
My investment case
Research shows that pet ownership in the UK is at an all-time high. In fact, 57% of UK households now have a pet. In addition, Statista reports that pet ownership has been increasing for years, and this increase will continue. I think this is good news for Pets at Home, because of their market position, product strength, and past track record. Earnings and returns are set to continue to grow.
Speaking of returns, the 4.6% dividend yield helps build my investment case. This passive income opportunity is hard to ignore. However, I understand that benefits are not guaranteed.
Going forward, the drop in share price has given me a big entry point right now. Shares currently trade at a price-to-earnings ratio of just 13.
Finally, the business has an excellent track record of growth, performance, and market dominance. While I understand that past performance is not an indicator of the future, these are all good things to consider when putting together my investment case.
Risk and my decision
From a bearish perspective, it is worth noting that economic fluctuations can have a negative impact on pet income, as well as investor sentiment. This is one of the reasons why I think stocks are down. Consumers are currently facing a higher cost of living, and may not be able to afford to skip their favorite pets. Continued economic pressure is something I will look into.
Another concern I have with Pets At Home is the appearance of online-only competitors. Changing consumer habits – namely online shopping – has led to the rise of the new kids on the block. These disruptors will seek to destabilize the pet market, and they don't have to deal with the high costs of large retail outlets, as Pets at Home does.
After considering everything, I think the advantages of the investment case outweigh the disadvantages to some extent. A leading market position, continuous investment in the business to stay at the forefront – such as the recent product innovation – and an attractive income opportunity and an attractive valuation make my investment case.
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