Sector financial performance:

This company, which primarily produces and distributes pet supplies products and garden products, has been grouped into pet food& supplies sector in pets industry.
It seems that the demand for pet food and supplies has been strong and continuingly growing in the past several years as indicated by increasing sales volume of pet food (5-9% annual growth) and supplies (3-4% annual growth) of typical companies in this sector. Accompanied with increase in pet food sales volume, revenue of companies in this sector has also been driven by sales’ shifting to higher price products.
Most of companies’ margins have been improved as a result of increased revenue, saving of costs, and sales’ shifting to higher margin products. The typical gross margin for pet food company is about 46% (including depreciation and freight), SG&A is about 23%, and operating margin is about 23% in 2018. The typical enterprise cash flow/sales ratio is 15%.
The typical enterprise price/EBI (adjusted with tax shield) ratio is 37 (pet food) and 27 (pet supplies).

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Company performance:

It seems that the demand for pet supplies of this company has been increasing gradually since 2015 as indicated by the growth in organic sales volume (3-6% annually).
The first six months of fiscal 2018 compared with the same period of 2017 (ended March 31 2018)
Organic net revenue increased 4%.
Organic pet net revenue increased 3.7% due to increase in sale volume of dog& cat category.
Fiscal 2017 compared with fiscal 2016
Organic net revenue increased 4.8%.
Organic pet net revenue increased 3% due to increase in sale volume of dog& cat toys, treats, and beds.
Fiscal 2016 compared with fiscal 2015
Net revenue increased 10.8%.
Organic pet net revenue increased 6%.
Its gross margin (including depreciation excluding outbound freight) was improved by about 140 basis points since 2015(to about 31%) due to acquisition of pet segment and improved margin in garden segment. Its SG&A as percentage of sales was flat at around 23% and this resulted in an improved operating margin of about 7.5% in 2018.

Stock performance

This company is having an enterprise price/cash flow ratio of 27. We think that its stock is being relatively fairly valued compared with its peer in pet food sector.

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