PetSmart Roars to a 52-Week High

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Shares of PetSmart (NAS: PETM) hit a 52-week high today. Let's take a look at how the company got there to find out whether clear skies remain on the horizon.

How it got here
Consistency. That's been true for PetSmart the company and PetSmart the stock for some time. It doesn't hurt to have great quarters, either, which is exactly why PetSmart's shares soared to new heights yesterday. Pets are a big business, and PetSmart's business model has thus far been resistant to online competition. That could change if Amazon.com's (NAS: AMZN) pet-focused site does for Fido what its Zappos subsidiary did for your feet -- and what Pets.com memorably flamed out trying to do more than a decade ago.

PetSmart has had little direct competition save from privately held Petco and big-box retailers Wal-Mart (NYS: WMT) and Target (NYS: TGT) , but they're really only distant cousins and don't make for a great comparison. PetSmart handily bested both in terms of shareholder return over the past few years:


PETM Total Return Price Chart

PETM Total Return Price data by YCharts

PetSmart has also handily trounced pet-prescription specialist PetMed Express (NAS: PETS) , which is slightly negative since 2007, but doesn't properly display its five-year history on YCharts.

What you need to know
Looking at each company through a magnifying glass quickly reveals the secret to PetSmart's outperformance (and the inexplicability of Amazon's, at least in the eyes of some Fools here):

Company

P/E Ratio

3-Year Annualized Earnings Growth

Net Margin (TTM)

PetSmart22.616.6%5.0%
Amazon178.8(14.7%)1.1%
Wal-Mart13.93.8%3.5%
Target13.45.7%4.2%
PetMed Express14.6(10.2%)7.0%

Source: Yahoo! Finance.

Sure, PetSmart has a higher valuation than both bricks-and-mortar competition and specializers inside this industry. But it's earned it through superior earnings growth and better profitability than its peers, excepting specialty specialist PetMed Express, which hasn't wowed investors over the years despite its impressive yield. PetSmart's string of earnings beats hasn't hurt either, and the company has better forward estimates than either Wal-Mart or Target. With little immediate danger on the horizon, PetSmart's current perch should be sustainable -- and improvable -- over the coming year, at least.

What's next?
Where does PetSmart go from here? That will depend on how much Americans love their pets. So far, the answer has been "a whole lot," and barring a complete meltdown, Fido and Fluffy will keep getting pampered by PetSmart's wide array of offerings. The Motley Fool's CAPS community agrees, giving PetSmart a four-star rating, with 93% expecting the stock to continue its growing ways.

Interested in tracking this stock as it continues on its path? Add PetSmart to your watchlist now for all the news we Fools can find. For more information on some other great long-term investments, click here for your free copy of The Motley Fool's popular report on "3 Stocks That Will Help You Retire Rich."

At the time this article was published Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool owns shares of Amazon.com. Motley Fool newsletter services have recommended buying shares of Amazon.com and PetSmart. Motley Fool newsletter services have recommended creating a diagonal call position in Wal-Mart Stores. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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