PetMed Express (PETS) reported a disappointing quarter with EPS of $0.19 missing the Zacks Consensus Estimate of $0.22 and the year-ago quarter's $0.27. Both gross and operating margins declined due to higher product and advertising costs — a big blow for the company as it depends on advertising to increase its customer base.
Moreover, economic uncertainty is taking a toll on the company, forcing consumers to switch to cheaper alternatives. We do no expect the situation to improve significantly in the near future. We maintain our Underperform recommendation on the stock.
Over the last five years, the company's shares have traded in a range of 13.7X to 24.8X trailing 12-month earnings. Our target price of $12.00 per share is based on 14.5X our 2012 EPS estimate of $0.83.
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