Motley Fool Australia

2 cheap pet shares that are beating the market

Credit: AllieKF

If it’s true that dogs are a man’s best friend, then it will come as no surprise that people are increasingly prepared to spend more on their beloved furry friends. It also stands to reason that this could be a growth industry worth investing in should the right opportunities be available.

In August 2017, Bloomberg published an article titled “pet stocks are beating the market“. In this article, Bloomberg explained that, “the Pet Passion index, a tracker created by Motif Investing that follows pet-related companies, has returned 19% over the past year, sprinting well ahead of the rest of the stock-market pack. The S&P 500 Index has only marked an 8.5 % gain so far this year.”

Whilst this article focuses on the US market and stocks such as PetMed Express Inc., Trupanion Inc.,and IDEXX Laboratories Inc., Australia is also following this trend. Yesterday, Quadrant Private Equity announced the sale of its investment in The Real Pet Food Co for $1 billion.

Investors looking for ASX-listed pet stocks might want to consider these two companies:

  • Greencross Limited (ASX: GXL) is a pet care retailer and provides of veterinary services. Greencross is well placed to grow through acquisitions of smaller operators as it consolidates the fragmented veterinary services, pet food, and pet accessories market. Despite its share price struggling in recent times, its share price has outperformed the market over the last 5 years as it pursues its strategy of co-locating a vet inside many of its Petbarn stores. Its share price is trading reasonably cheaply at a price/earnings ratio of 14.
  • National Veterinary Care Ltd (ASX: NVL) is also a leading provider of veterinary services in Australia. Its share price, which has increased by 24% over the last year has also outperformed the market as it pursues its acquisitive growth strategy. NVL has acquired 14 clinics during FY 2017 and maintained its EBITDA margin at over 17%.

Foolish takeaway

Spending on pet services has been growing and the nature of the fragmented veterinary industry will present more consolidation opportunities for Greencross and NVL. Future success however, will likely be driven by their management teams’ expertise in sourcing acquisitions with accretive earnings.

Where to invest $1,000 right now

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*Returns as of February 15th 2021

Motley Fool contributor Kevin Gandiya has no position in any of the stocks mentioned.

You can follow Kevin on Twitter @KevinGandiya

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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