(B)(N) PETM PetSmart Incorporated

Courtesy: PetSmart Incorporated

Drama. Analysts and investors often confuse a company and its “stock price” and they end-up taking “short cuts” in which something allegedly “good” or “bad” (sic) in a company’s alleged prospects is projected onto its “stock price”.

Although that might seem like “rational behaviour” – and what else are they to do – the behaviour and its inference are akin to “racial profiling” and the consequences are similar. Such as confusion, missed opportunities and irrelevance (The Street, January 6, 2014, PetSmart Slumps as Deutsche Bank Slaps With ‘Sell’).

It’s evident from the chart below (please see Exhibit 1) that PetSmart has been providing us with not only great products for our pets but also a great product for our portfolio. And that’s the point.

The stock price is not about how much the company earns but how much can we earn as investors who own some of its stock – is our money “safe” – 100% capital safety – and are we likely to obtain a hopeful return above the rate of inflation. That is, might someone possibly offer us a higher price for the stock that we own, sometime in the future?

Possibly based on the Deutsche Bank report, the stock price slumped $2 today to $69 but what does that mean for the long term. That’s right. Nothing. And it doesn’t affect whether we should own it or not.

Good, Serviceable, Undervalued
Maybe we should buy it?

The company has been in our portfolio since $20 three years ago and currently pays its shareholders $81 million per year in dividends for a current yield of 1.1%. Our estimate of the downside in the stock price due to the demonstrated volatility is minus ($4) per share so that we would not be surprised by any price between the current $70 and $66 to $74 in the next quarter.

We also note that the current “price of risk” is $55 and rising (Risk Price (SF) in Exhibit 1 below) which means that the stock is “undervalued” at $70 and that we will tend to buy and hold it at any price above $55 absent being forced to take profits. Now, isn’t that interesting!

Exhibit 1: (B)(N) PETM PetSmart Incorporated – Risk Price Chart

(B)(N) PETM PetSmart Incorporated

PetSmart Incorporated provides specialty products, services and solutions for the lifetime needs of pets in North America. It offers products for all the life stages of pets, professional grooming, training, day camp for dogs and boarding.

(Please Click on the Chart to make it larger if required.)

From the Company: PetSmart Incorporated together with its subsidiaries, operates as a specialty retailer of products, services, and solutions for pets in the United States, Puerto Rico, and Canada. The company offers consumables, such as pet food, treats, and litter; and hardgoods, which include pet supplies and other goods comprising collars, leashes, health care supplies, grooming and beauty aids, toys, apparel, and pet beds and carriers, as well as aquariums and habitats, accessories, décor, and filters for fish, birds, reptiles, and small pets. It also provides fresh-water fish, small birds, reptiles, and small pets; and pet services, such as grooming, including precision cuts, baths, nail trimming and grinding, and teeth brushing, as well as training, boarding, and day camp services. In addition, the company operates PetSmart PetsHotels that offer boarding for dogs and cats; provides personalized pet care, temperature controlled rooms and suites, daily specialty treats and play time, and day camp services for dogs; and operates veterinary hospitals, which offer services comprising routine examinations and vaccinations, dental care, a pharmacy, and surgical procedures. As of March, 27, 2013, it operated 1,278 pet stores; and approximately 196 in-store PetSmart PetsHotel dog and cat boarding facilities. The company also offers its products through an e-commerce and community site, PetSmart.com. PetSmart, Inc. was founded in 1986, has 24,000 employees and is based in Phoenix, Arizona.

For more information on the chart elements and additional references to the theory, please see our recent Post, The RiskWerk Company Glossary.

And for more on what risk averse investing has done for us this year, please see our recent Posts on The S&P TSX “Hangdog” Market or The Wall Street Put or specialty markets such as The Dow Transports & Utilities or (B)(N) The Woods Are Burning, or for the real class action, La Dolce Vita – Let’s Do Prada! and It’s For You, Dear on the smartphone business.

And for more stocks at high prices, The World’s Most Talked About Stocks or Earnings Don’t Matter – NASDAQ 100. And for more on what’s Working in America, Big Oil, Shopping in America or Banking in America, to name just a few.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™
Alpha-smart with 100% Capital Safety and 100% Liquidity
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.

Disclaimer

Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.