The IPO I’m most excited about in 2021
The stock exchange has already seen several well-received IPOs this year – among them, Petco Health and Wellness Company (NASDAQ: WOOF). On January 13, the company valued its offering of 48 million Class A shares at $ 18 per share, more than the range of $ 14 to $ 17 it had provided in previous regulatory filings. After launching the next day, the stock surged, briefly hitting $ 31, and has since been trading well around $ 26 to $ 27.50.
Given the level of investor interest in Petco, it’s time for a thorough review to make sure there is substance and it’s not just joke.
Larger enterprise
After CVC Capital and the Canada Pension Plan Investment Board bought Petco in 2016, they started making changes. Although the company has been around for over 55 years, new management has transformed it over the past three years. They expanded their offerings beyond pet food and supplies, taking a more comprehensive approach that added veterinary services, pet insurance, grooming, and training. They’ve also been pushing omnichannel initiatives to allow customers to shop online with various options to pick up orders from stores or have them delivered to their doorstep.
The management is not done. Now it is focusing on subscription services such as Petco Vital Care, which offers premium access to company services for an annual fee, and PupBox, a service through which owners of young dogs receive monthly mailings. personalized premium food, treats and toys. to the needs of their growing puppies.
Recent results attest to Petco’s success. In fiscal 2018, which ended February 2, 2019, same-store (coms) sales fell 1%. However, they rebounded to reach a 3.9% increase the following year. And for the first nine months of 2020, comps increased 9.6%. During that time, its year-over-year losses fell from $ 94 million to $ 24.8 million.
People love animals
If you own or know a pet, you will probably have noticed that many people these days are treating them more and more like family. This means that even when their finances are strained, they are less likely to cut back on spending on their dogs and cats, especially when it comes to their health.
Petco management cited industry data showing that the industry has grown 5% per year since 2008. However, during the the recession of the last decade, it grew 6% per year from 2008 to 2010. And during the pandemic, people adopted new pets at an increased rate.
Certainly, this bodes well for Petco, especially as it is expanding into areas such as veterinary care.
Pay off the debt
Petco management has also cleaned up its balance sheet, which is nice to see. And the company is using a portion of the more than $ 800 million from the IPO’s proceeds to pay off debt. Its adjusted debt stood at $ 1.8 billion compared to $ 3.3 billion at the end of the third quarter.
Reducing leverage lowers the company’s financial risk, which is a good thing for shareholders.
With a strategy that shows promising results, an engaged and loyal customer base and improved technology, Petco offers promising prospects. No wonder its stock price rose after its IPO.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.