If you sell Greencross Limited now, you might regret it

Many readers will be familiar with the vet and pet store brand that has grown considerably in recent years. Yet despite all the growth, I think investors would be doing themselves a disservice by selling their shares in Greencross Limited (ASX: GXL) now. Here’s why:

  • The company is self-funding its growth

Unlike in recent years, Greencross is now generating ‘free cash flow’ which means that it generates leftover cash after its expenses are paid. In previous years, the company was running at a deficit, and funding its operations via debt.

In previous years, you could have reasonably decided that expanding via debt was too risky. That is no longer the case.

  • It has a long way to go before reaching its stores’ full potential

Greencross is co-locating its vet and pet grooming services into its retail stores. Company figures show that this both makes them cheaper to establish and improves retail sales. However, only 10% of Greencross stores have a vet, and 31% have a groomer.

There is plenty of room for the company to grow its sales by rolling out more vet and grooming services. Stores and vet clinics also take a couple of years to reach maturity, which means that recent openings should continue to deliver ‘like for like’ sales growth. On top of that, Greencross only controls around 6% of the total Australian pet market.

  • Many ways to grow

The potential of some other initiatives like loyalty cards, online sales, pet insurance, and private label products should not be overlooked. With 237 retail stores and 164 vets, Greencross is also small enough that it can continue to grow via acquisition, even at a slow rate.

Although the company’s share price hasn’t been very exciting over the past two years, Greencross has made plenty of progress and I think it would be a mistake to sell the company now.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. The Motley Fool Australia owns shares of Greencross Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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