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One growth stock I’m excited about is Pets At Home Group (LSE: PETS). Here’s why.
Looking after Britain’s pets
Pets At Home is a British multichannel retailer specializing in pet care and goods. It possesses a number of retail stores, an online presence, grooming salons, and veterinary services all tailored to helping consumers look after their beloved pets.
Many shares have struggled in recent months due to macroeconomic issues such as rising inflation and interest rates. The current cost-of-living crisis has dampened things further. The Pets At Home share price has actually rallied, mainly due to excellent trading results, but more on that later.
As I write, Pets At Home shares are trading for 385p. At this time last year, the shares were trading for 320p, which is a 20% increase over a 12-month period.
A growth stock with excellent fundamentals
To start with, pet ownership is rising exponentially in the UK and has reached record levels. No matter the economic outlook, which is gloomy at present, pets need to be cared for whether that’s food or healthcare. Pets At Home is in an excellent position to capitalise on this demand and grow performance and returns.
Speaking of performance, in May the firm released record full-year results for 2022. Revenue, profit, and free cash flow all reached record levels. In addition to this, it reiterated its strong position in the animal care market, confirming a 24% market share in a near-£7bn market.
Furthermore, Pets At Home pointed to recurring revenue through its popular VIP loyalty scheme, which brought in 400,000 new customers this year. This should help boost future performance, in my opinion. These results underpin my excitement around this growth stock. I am conscious that past performance is not a guarantee of the future.
Moving onto current returns, the shares pay a dividend, which would boost my passive income. At present, the dividend yield stands at a healthy 3.3%. I’d expect this to continue to increase if future growth aspirations are reached. City analysts also believe the company should be able to grow dividends in the coming years too. It is worth noting that dividends are never guaranteed.
Risks to consider and my verdict
Despite my overall bullish stance on Pets At Home shares, I must be wary of some potential pitfalls too.
One big issue is the current cost-of-living crisis. Customer wallets are a bit lighter at present, which means non-essential pet care and goods could be abandoned. This could impact Pets At Home’s performance. In addition to this, many of its products are manufactured and shipped from abroad. Rising costs of materials, products, and shipping could squeeze margins. In turn, this could impact profitability and investor returns.
To summarise, I believe Pets At Home is an excellent growth stock and I’ll be adding some shares to my holdings imminently. It possesses a healthy balance sheet, pays a decent dividend currently, is coming off the back of excellent full-year results and has a good market share overall which could help propel it to new heights.
