Is Now The Time To Look At Buying Petco Health and Wellness Company, Inc. (NASDAQ:WOOF)?

Petco Health and Wellness Company, Inc. (NASDAQ:WOOF), might not be a large cap stock, but it received a lot of attention from a substantial price increase on the NASDAQGS over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, what if the stock is still a bargain? Today I will analyse the most recent data on Petco Health and Wellness Company’s outlook and valuation to see if the opportunity still exists.

View our latest analysis for Petco Health and Wellness Company

What Is Petco Health and Wellness Company Worth?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Petco Health and Wellness Company’s ratio of 34.03x is above its peer average of 9.76x, which suggests the stock is trading at a higher price compared to the Specialty Retail industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Petco Health and Wellness Company’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What does the future of Petco Health and Wellness Company look like?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 76% over the next couple of years, the future seems bright for Petco Health and Wellness Company. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? WOOF’s optimistic future growth appears to have been factored into the current share price, with shares trading above industry price multiples. At this current price, shareholders may be asking a different question – should I sell? If you believe WOOF should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on WOOF for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the optimistic prospect is encouraging for WOOF, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

In light of this, if you'd like to do more analysis on the company, it's vital to be informed of the risks involved. Be aware that Petco Health and Wellness Company is showing 3 warning signs in our investment analysis and 1 of those is concerning...

If you are no longer interested in Petco Health and Wellness Company, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.