Make the Most of a Dog's World

Customers call 1-800-PETMEDS to get prescription and nonprescription medication and other health products, including such well-known brands as Frontline, Advantage and Heartgard. The company, whose balance sheet is rock-solid, earned around $14 million on $150 million in sales over the past 12 months, and while the past quarter might not have been red-hot, I expect earnings to accelerate in the current quarter. When this is combined with a share repurchase program, a superb return on invested capital of 35% and improved expense control, I expect PetMed to grow around 19% in 2007 and up to 28% in 2008.

Now trading around $13.50 with a forward price-to-earnings multiple of 17, if a few things go right you could easily see PetMed trade up to the $18 to $20 area over the next 12 to 18 months as the multiple lifts toward 20. That would be a 45%-plus gain from here. It's a buy right now.

Meanwhile, you just have to love a stock that goes by the symbol WOOF. That's VCA Antech(WOOF Quote), which runs a chain of veterinary hospitals and diagnostic testing labs focused on pets. Its VCA Animal Hospitals perform everything from internal medicine to ophthalmology, dermatology and cardiology, and it has special X-ray and ultrasound equipment just for small animals.

Shares are up sixfold in the past five years but have just recently traded off after management gave its typically conservative forward earnings guidance. The company earned $103 million on $957 million in sales over the past 12 months and is on track for 15% to 20% annual growth through the rest of the decade. Trading at a 24 times forward multiple, shares are not undervalued; they simply represent a classic growth-at-a-reasonable-price story.

Use the recent weakness to buy WOOF here around $32.50 as a play on the great secular demographic trend toward pet care, and target the low $40s over the next 12 to 18 months, which would be a gain of 30%.

In sum, I just have to say this: It's a dog-eat-dog world out there on Wall Street. Might as well make the most of it.

At the time of publication, Jon Markman did not own shares of any company mentioned in this article.