Should You Think About Buying Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) Now?

While Petco Health and Wellness Company, Inc. (NASDAQ:WOOF) might not be the most widely known stock at the moment, it received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$9.49 at one point, and dropping to the lows of US$4.94. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Petco Health and Wellness Company's current trading price of US$4.94 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Petco Health and Wellness Company’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Petco Health and Wellness Company

What's The Opportunity In Petco Health and Wellness Company?

Petco Health and Wellness Company is currently expensive based on my price multiple model, where I look at the company's price-to-earnings ratio in comparison to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 36.59x is currently well-above the industry average of 11.71x, meaning that it is trading at a more expensive price relative to its peers. 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 61% 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? It seems like the market has well and truly priced in WOOF’s positive outlook, 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.

If you'd like to know more about Petco Health and Wellness Company as a business, it's important to be aware of any risks it's facing. For instance, we've identified 2 warning signs for Petco Health and Wellness Company (1 doesn't sit too well with us) you should be familiar with.

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.