The latest pitch from Roadrunner Stocks starts out, as do many “small cap growth” and “breakout” stock newsletters, with the story of Monster Beverage (MNST) — the top stock of the last decade, and for many years the favorite idea of every momentum stock lover.
And like the rest of us, Jim Fink at Roadrunner Stocks is looking for the next Monster (or next Apple, or Green Mountain Coffee, or Deckers) to give investors gains of several thousand percent or more (Monster went up more than 20,000% over the past ten+ years).
Presumably the plight of small cap growth investors will continue to be that they must kiss a hundred frogs for each prince they aim to discover, but that doesn’t make the search less fun. So what stock is Fink teasing as his current favorite? Here’s some of the ad to give you a taste:
“Now is the time to stop reading about the good fortune of others, and write your name into the NEXT success story.
“My NEW small-cap pick is perfectly positioned to appear in the NEXT top-10 list.
“Here’s why you need to find out more about this stock…
“It’s prepared to absorb the billions that are suddenly being poured into the pet care industry.
“In today’s world, pets have become as beloved as children.
“The amount of emotional – and financial – affection that childless couples, busy executives and well-to-do retirees are heaping on their favorite animals is amazing.
“People are spending thousands on pet food and pet care, paying tens of thousands to animal boarders and dog walkers, and even naming their pets as heirs to their estates in their wills.”
Spending on pets has certainly risen over the years, as even the Gumshoe pocketbook can attest (anyone else have the emergency vet on speed dial?) — but that’s been true for a long time and it doesn’t mean that all pet-related stocks go up all the time. Here are the trends that catch Fink’s attention (or his copywriter’s, at least):
“This trend is bringing in a whopping $58 billion to the pet care industry every year, up from less than $17 billion in 1994.
“Pet ownership has tripled since the 1970s. The pet population is growing faster than the human population.
“Veterinarians are major piece of this industry. And they’re piling up profits as they try to keep up with the rapidly increasing demand of luxury-level service.”
And apparently it’s something to do with veterinary care that we’re seeking here. He says that the growing adoption of pet health insurance is helping the best vets and improving veterinary facilities. More from the ad as we suck up all the clues we can:
“Over $15 billion will be spent on veterinary care this year – and most of this money will go to the vets that offer the best care and facilities.
“And all of that money is up for grabs.
“Enter my NEW small-cap pick, as it corners the exploding animal healthcare market…
“This company was one of the first to spot the upswing in spending on pet healthcare, and their goal is simple: offer established vets the chance to join their growing network of modern, attractive pet healthcare facilities.
“At last count, they now own over 600 animal healthcare centers. These locations offer the best animal healthcare options available – cutting-edge treatments like feline radiation therapy, canine bone-marrow transplants and canine hydrotherapy….
“My NEW small-cap pick is profiting from every piece of the pet healthcare pie…
“In addition to direct franchises, they offer Web, client and consulting services to busy independent vets. They also have a business that offers X-ray, imaging and diagnostic services as a third party to small vets without full-scale facilities.
“The founders of this company all come from the human healthcare sector. They previously owned a very successful chain of human outpatient clinics, but felt future growth was stifled by low margins and complicated politics. So they switched to animal healthcare – and they haven’t looked back since.”
So who is it? We feed all those little nuggets into the gaping maw of the Mighty, Mighty Thinkolator and learn that this is … VCA (ticker WOOF — former name VCA Antech).
WOOF was a big growth name a decade ago as they were just starting on this journey to build a big network of animal hospitals and veterinary clinics — that stalled during the financial crisis and was a bit slow to recover, but the stock has been on a upswing again this year and is now near the 52-week high at about $37 (though it’s still a good 20% down from the 2007 peak). They are priced for growth, they continue to grow by acquiring new hospitals, and they report… today. So don’t rush into anything.
Analysts are expecting WOOF to boost earnings by a little under 10% both this year and next year, and they’ve been right on target with the quarterly earnings estimates for the last couple quarters, and the stock is right now trading at about 18X next year’s estimated earnings… so it’s not a crazy momentum growth stock, but it is priced at a premium so investors are expecting them to grow earnings faster than the market.
I am no expert on veterinary economics, to be sure, but there was a large study a few years ago that examined the decline in pet health spending and blamed it in part on the recession (though not definitively), so while the trend of growing pet ownership and growing pet spending seems pretty intact over the long term that doesn’t necessarily mean that vets are going to always rake in more money each year than the year before — there’s a lot of pet spending outside of the veterinary clinic, too, and probably a big difference in spending among different economic classes that can’t be smoothed out by vet health insurance. Perhaps as big an impact on the size of WOOF will be the generational transfer of veterinary hospitals as the baby boomer vets retire — the way they grow is generally by buying up existing practices or partnering with those practices, and in large part the appeal for independent veterinarians is as a “retirement strategy.”
But like I said, they report their quarter in an hour or two and I have no idea what it will look like — they haven’t surprised either up or down in the last two quarters, and analyst earnings estimates have not been changing, so if you like this one you can probably just sit in on their conference call and start to get familiar with them this evening without worrying that you’re going to miss a huge move overnight. If you like (or dislike) what you see from WOOF, let us know with a comment below.