What Happened:
Shares of pet-focused retailer Petco (NASDAQ:WOOF) jumped 18.5% in the morning session after the company reported second-quarter results that exceeded analysts' EPS, adjusted EBITDA and free cash flow expectations. Its gross margin also narrowly outperformed Wall Street's estimates. The results highlight the improved handling of profitability and liquidity.
On the other hand, its revenue and earnings guidance for next quarter came in slightly below Wall Street's estimates. However, Joel Anderson, Petco's Chief Executive Officer, provided reassuring comments following his first quarter at the company and emphasized the focus on fixing foundational issues and enhancing cash flow and profitability. Taking a broader view, we think this was a decent quarter featuring some areas of strength but also some blemishes.
Is now the time to buy Petco? Access our full analysis report here, it’s free.
What is the market telling us:
Petco’s shares are quite volatile and over the last year have had 73 moves greater than 5%. But moves this big are very rare even for Petco and that is indicating to us that this news had a significant impact on the market’s perception of the business.
The biggest move we wrote about over the last year was 4 months ago, when the stock gained 29.9% on the news that the company reported first quarter results that blew past analysts' EPS expectations. Next quarter's revenue, adjusted EBITDA, and earnings guidance were roughly in line with Wall Street's estimates, showing that the company remains on track with no surprises. Zooming out, this was a solid quarter that should please shareholders.
Petco is up 20.3% since the beginning of the year, but at $3.82 per share it is still trading 22.4% below its 52-week high of $4.92 from September 2023. Investors who bought $1,000 worth of Petco’s shares at the IPO in January 2021 would now be looking at an investment worth $129.25.
Today’s young investors won’t have read the timeless lessons in Gorilla Game: Picking Winners In High Technology because it was written more than 20 years ago when Microsoft and Apple were first establishing their supremacy. But if we apply the same principles, then enterprise software stocks leveraging their own generative AI capabilities may well be the Gorillas of the future. So, in that spirit, we are excited to present our Special Free Report on a profitable, fast-growing enterprise software stock that is already riding the automation wave and looking to catch the generative AI next.