“Pet Profits: Ride the Animal Healthcare Boom on this Top-10-Potential Stock”

By Travis Johnson, Stock Gumshoe, July 24, 2014

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.


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28 Comments on "“Pet Profits: Ride the Animal Healthcare Boom on this Top-10-Potential Stock”"

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dcohn
Irregular
177
Just an FYI related to VET Bills going up. Cats should never be fed DRY FOOD of any kind. This comes from the inventor of a method of curing/maintaining diabetic cats called TR (Tight Regulation). The diet is key and she suggests feeding RAW CHICKEN and added vitamins specific for cats or at minimum wet canned food that has no gluten, corn starch or grains and is mostly meat or meat by products. Like Fancy Feast Classic flavors. Cats are Obligate Carnivores meaning they require MEAT to live. Add carbs to their diet and they will get FAT and sick.… Read more »
Deborah G Flynn
Guest
0
OK this answer is Waaaaaaaaaaay to jaded and no accurate. My husband is a 40 year practicing Veterinarian and while some think the “raw” diet [primarility “alternative” ppractitioners there are safer diets. Secxond I am totally offended by the remark that Veterinarians don’t learn properly because somehow the Aleternative [read that homeopathic] practitioners are better. THZEY have all the answers and we are POISONED as well as our animals because of big money interests running the Vet programs. Soory HOGWASH> They do fund some research but they DON”T pay off the schools or the Doctors with tainted money. Third ANtech… Read more »
Travis
Guest
0

If nothing else by the above post, pet owners are passionate and will out spend any recession!

gguy
Guest
0

I love the sidebar discussions on your site Travis

dee hee
Guest
0

who cares ?

hipockets
Irregular
1167

All pet lovers care.

Rusty Brown in Canada
Guest
0
Rusty Brown in Canada

I recall reading somewhere that dog food which is high in rice as a filler, and therefore high in carbohydrates, will give a dog diabetes eventually because the starch breaks down into sugars, which they cannot digest. I suspect the same would apply to wheat, oats etc.
By the way, all canned pet food is cooked. It has to be in the canning process, to destroy any living organisms inside the sealed container.

William F Tilson
Guest
0
American corporations which manufacture the prepared food products found on every grocery store shelf in our country have been systematically poisioning our population for decades, Do you think the diabetic crisis in this country is because children have emotional eating problems and parents are stupid ? My reading leads me to believe the cause is the food choices we have and our propensity to eat prepared food or fast food junk – the two major food groups in this country ? Try sugar and preservatives. You think a corporation will be more altruistic because it produces dog food ? Probably… Read more »
john
Guest
0

My cat has eaten only dry food for the past 12 years. She won’t eat anything else. I have tried fish ,chicken,beef,turkey etc and she just walks away.

Robert
Guest
0

Our last cat lived 16 years and weighed 16 to 18 pounds depending if it was winter or summer. He was nice and lean and never fat. He was an indoor outdoor cat and ate dry food from kitten to grave supplemented by the occasional gopher or quail.

if you want to use only dry food then Quality dry food is the key.

24jmp93
Irregular
7

Sorry to be the bearer of bad news, but an 18 lb Bobcat is lean. A 16 lb. domestic feline is NOT. JMP, DVM

meassassin
Irregular
14

How about a 22lb F2 Chausie?

quincy adams
Guest
0
As most of the discussion here is about cats, perhaps VCA Antech should have better chosen the ticker MEOW. I’ve cared for many pets, canine and feline. They all lived long and happy (to the best of my knowledge) lives and none of them were ever fed raw food. None of the dozen or so vets I’ve used have ever recommended anything other than good quality dry food for them. More to the point, most of these vets were dedicated to providing the best care possible at reasonable cost and would never consider selling out.
c193
Irregular
54
Well I’ll tell my little cat story. My cat was quite overweight (dry food) and the vet said to put him on Purina One Weight Control. (I believe I told her I objected to wet food due to convenience.). He gained about 4 more lbs! I changed to Purina One Protein and he lost several pounds, ending up smaller than the original weight. That proved to me that carbs should not be the center of a cat’s diet, or ours! The problem to me of VCA as an investment is that there is a limit to how much people can… Read more »
soksniffer
Irregular
0
My cat’s breath smells like cat food. –Ralph Wiggum Cat owners… sheesh. Anyway, WOOF beat their revenue estimate by $0.01 and the stock went down by more than 1%, for whatever that is worth. Also, not sure how this would affect a pet HMO(?) one way or the other, but I recall seeing an article in the last week or two about possible federal regulation of the pet insurance industry. For the vets on this forum, I’m curious (as a cat…?) as to how you feel pet networks will affect your industry. Will costs go down? Profits up? Human health… Read more »
motorhead
Irregular
31

The real secret to your cat maintaining its weight is more exercise. Upper body one day and lower the next.

greggo

Kevin
Guest
0

I love my pets But.
A good friend has spent almost $8k on his dog this year.
I love my car, if it was going to cost me $8k this year to keep it running…
Time for a new one…

takeprofits
Irregular
384
Subtle way of making the point also addressed by C193 and Dave, the simple fact is that many middle class income earners, no matter how much they love their pets, whether cats or dogs, simply can not afford vet bills of hundreds of dollars. Recently a famous billionaire, (Kevin O,Leary) On either Shark Tank in the U.S. or Dragon’s Den in Canada said it is crazy for people to spend thousands on pets when they can be replaced for very little, which did not go over very well with pet lovers. In other words he as a billionaire is pragmatic… Read more »
Scott715
Guest
0

Wow! Not one single comment about the actual value or growth potential of the stock. Looks like a steady grower to me but not something that will go through the roof overnight.

Patsy R
Guest
0
We just finished paying over $5000. for surgery for our 18 yr. old cat’s cancer and chemo. We also pay Delta $200 each way take her on our extended vacations. I had never heard of VCA until our emergency trip there last March. All staff were caring and helpful. Both the surgeon and the oncologist met with us or called us regularly. I don’t think their prices were out of line. Given our experience with them, I should check out their stock. If it is worth any investment money, maybe we can get some of our cat’s medical costs back.
stevemack70
Irregular
29

I thought I figured this one out 2 weeks ago and bought some. That Travis confirms my first successful guess sets my tail a waggin’.

reggits
Irregular
11

Up almost 4% today. How to interpret that?

carbon bigfoot
Guest
0

Dogs are GOD’s gift to man. Unconditioned LOVE and LOYALTY. Lucky to have two pure bred rescue dogs. One a six year old cocker spaniel, the other a border collie. Only feed them MEAT and cut green beans ( wash off the salt ). Constant companions smart than most humans. Don’ t buy or rescue a Border Collie unless you have the time. Best explanation is at GlenHighlandFarm.com Sweet Border Collie Rescue.

Lulu
Irregular
1113
I have to put in my two paws as well……coming from a farming comminuty, the cats caught mice n birds, the dogs caught squirrels and wud happily snag a duck or chicken had they been allowed, they were fed people food. Scrapes, bones raw generally and they lived to 18 to 22. No where did it suddenly become okay to feed a beloved animal a bag of garbage from Walmart. Look at the ingredients people! A starving dog will not eat grains or corn etc…..I’ve witnessed it in Asia while on travels. Dogs eat meat as do cats and it… Read more »
jimbecker
Member
58

Growing up I would come home from school to find my Norwegian Elk Hound laying on the front lawn, eating a freshly killed muskrat. She ate from the inside first all the organs. Dogs are descended from wolves.

darcy841
Member
6
Re:VCA provides exemplary veterinary service by purchasing large veterinary practices and referral centers staffed by state of the art specialists and equipped to provide the highest standard of care. . Better medical/diagnostic care for pets than available for most people in the third world. They market to people who want the most advanced services for their pets, and are willing to spend $$$$ . Every drug/procedure provided costs more, frequently significantly more, than the vet down the street. There are lots of GP practitioners who provide similar high quality and but less costly services for routine procedures. To each his… Read more »
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