Petco Health & Wellness Co. (WOOF) is down more than 25% in Wednesday morning trading after delivering 3rd quarter earnings that featured a surprise loss.
The pet supply store reported total sales of $1.49 billion, which came in just below the consensus of $1.51 billion. This was also a 0.5% drop year over year, while the company was initially projecting a 0.5% gain in same-store revenue growth. Petco grew revenue by more than 4% this time last year.
Profits suffered in the 3rd quarter as well. The GAAP net loss of $1.2 billion ($4.63/share) came as a huge shock to both analysts and investors. Adjusted earnings per share came out to a loss of 5 cents per share while analysts were looking for 2 cents per share.
This was a dramatic step backward from this quarter last year when Petco posted a net income of nearly $20 million. A $1.2 billion goodwill impairment charge is one of many things to blame.
We’ve seen a number of companies point to a challenging economic environment when reporting underperformance over the past few weeks, and Petco followed suit. It’s felt the strain of more cautious consumer spending.
However, the company noted that it would take “swift and decisive action” to right the ship, starting with releasing national cat and dog food value brands to help customers on a budget.
Petco revamped its full-year earnings guidance, slashing its forecast of 30 cents to a modest 8 cents. While the previous revenue guidance of $6.15 billion to $6.28 billion remains intact, adjusted earnings are now forecasted at around just $400 million for the year. This figure was originally as high as $480 million.
WOOF has now fallen more than 46% in the past few months and 70% in the past year. We’ve taken a look at this stock through the VectorVest stock analysis software and found 3 things suggesting it may be time to cut losses on this stock if you’re an investor.
WOOF May Have Fair Upside Potential, But the Stock Has Poor Safety and Very Poor Timing
VectorVest gives you clear, actionable insights in 3 simple ratings to help you win more trades with less work. These are relative value (RV), relative safety (RS), and relative timing (RT).
Each sits on its own scale of 0.00-2.00, with 1.00 being the average. You’re even given a buy, sell, or hold recommendation for any given stock at any given time based on the overall VST rating. As for WOOF, here’s what you need to know:
- Fair Upside Potential: The RV rating compares a stock’s long-term price appreciation potential (forecasted 3 years out) to AAA corporate bond rates and risk. It offers far superior insights than a simple comparison of price to value alone. The RV rating of 0.99 is just below the average but deemed fair for WOOF. That being said, the stock is undervalued - its current value is $4.08.
- Poor Safety: The RS rating is a risk indicator derived from an analysis of the company’s financial consistency & predictability, debt-to-equity ratio, business longevity, price volatility, sales volume, and other risk factors. WOOF has a poor RS rating of 0.63.
- Very Poor Timing: After losing nearly ¾ of its value in the past year, WOOF has very poor timing - and today’s performance is only making matters worse. The RT rating of 0.32 is based on the direction, dynamics, and magnitude of the stock’s price movement day over day, week over week, quarter over quarter, and year over year.
The overall VST rating of 0.67 is poor for WOOF, and VectorVest recommends SELLING this stock now. Get a free stock analysis if you want to gain deeper insights before doing so or learn more about how the VectorVest system works!
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VectorVest advocates buying safe, undervalued stocks, rising in price. WOOF fell more than 25% Wednesday after bad earnings and a dismal forecast for the remainder of the year. The stock does have fair upside potential, but it also has poor safety and very poor timing.
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