PetMed Express: Charts Say This Could Be The Bottom PetMed Express has a high 8% yield that comes with risk. The company is on track with a turnaround, and the institutions have been buying.

PetMed Express (NASDAQ: PETS) has struggled for years but may have finally hit bottom. The company's primary competitor, Chewy.com (NASDAQ: CHWY), dominates and takes market share. The good news is that pet trends remain positive and will help support the company as it completes its turnaround efforts. Those include widening the selection of products, which is why Chewy is the market leader. Chewy users can get anything for their pets, while at PetMed Express, the selection is more limited, and users tend to use Chewy too.

The takeaway is that PetMed Express may have hit bottom. The company released weaker-than-expected results and an outlook for increased momentum later in the year. Among the causes for the weak results is increased spending on turnaround efforts, including investment in people, products, and technology. This year execs say they will focus on execution which should drive revenue growth and a return to profitability. Among the positive details of the report is that the new customer count is growing again, for the first time in over 2 years. It wasn't enough to offset a slowdown in sales, but it's a start.

"As we mentioned on previous earnings calls, PetMed is in a rebuilding mode. We have reconstituted the company with an updated strategy, a new and experienced management team and a revised overall approach to the market," said CEO Mathew Hulett on the conference call.

PetMed Express Has Weak Quarter, Margins Contract

PetMed Express had a tough quarter, with revenue falling 5.5% to $62.4 million. This is 500 basis points weaker than the Marketbeat.com consensus and comes with a weak margin. The revenue contraction is due to a 6% decline in recurring traffic offset by a 12% increase in new customers. The margin is the real worry.

The GAAP margin contracted to negative territory, leaving the EPS at $0.25 or $0.39 worse than expected. The 1-off factor impacting the results is a tax provision due to a tax assessment and efforts to offset future assessments. Adjusting for that, GAAP earnings would have been $0.00, which is still below the consensus. Adjusted EBITDA is positive but down 62% YOY.

The balance sheet is still in good shape, although the cash is coming down. The company has no debt or plans to use it and indicates a commitment to return capital. The Q4 results included a dividend declaration for $0.30, which aligns with previous payments. The payout ratio is well into the triple digits and is not expected to return to safe levels until 2025.

This puts the 8% dividend yield in danger of cutting or suspension, which is not a catalyst for higher share prices. A dividend cut may be priced into the market, but others, such as VFC Corporation, have trended lower following a long-expected distribution "right-sizing."

Analysts And Institutions: Who's Right About PetMed Express?

The analysts appear bearish on the stock. The 1 analyst rating it has it pegged at Sell but with a price target that offers 10% of upside for investors. The takeaway may be that analysts have reached their most pessimistic level, abandoning the stock based on the 1 current rating, and may change their tune. The institutions, which own about 78% of the company, have been buying the last 2 quarters.

The chart is iffy. The stock is in an obvious downtrend but may have hit bottom. The post-release action has the stock opening lower but moving sharply higher to form a Bullish Engulfing Pattern on the daily and weekly charts. This pattern indicates a reversal and could take the stock higher over the next few months and quarters.