You might say this stock is for the dogs. But that's not a bad thing. Not in the least. Not in the case of PetSmart (TICKER: PETM).
In his ongoing quest for new stock ideas Jim Cramer said this seller of pet food and goods may represent true value.
PetSmart has been on a decline ever since mid-December and at current levels Cramer thinks the stock is cheap.
"The underlying theme is still sound," he said. That is, people like to spend money on their pets. "They spend fortunes."
And Cramer thinks more people are about to spend those fortunes. That's because Pet adoptions have increased for the fourth consecutive quarter.
Cramer explained that was a key metric because the first year of owning a cat or dog is usually the most lucrative time for PetSmart; new owners invest lots of money upfront buying all kinds pet paraphernalia and training.
Cramer also sees strong growth potential. "Even with 1300 stores around the country management believes they can get the store count up to 1800," Cramer said.
In addition, Cramer likes current sales trends. "They've told us that quarter-to-date sales have improved each week of the current quarter. That's very bullish," he said.
In addition, Cramer added that he also sees PetSmart as a play on the housing recovery. "We're building a million new homes this year, and as people move into their own home, they're more likely to buy a pet.
And he likes a few other metrics too.
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"PetSmart's 2013 forecast calls for 14% growth," he said. "Although that's a slower pace than in the past, on the conference call management basically admitted that it's being incredibly conservative this time around," Cramer said. "But even if that 14% growth number turns out to be right, PetSmart is only trading at 14 times earnings, and that's pretty darned cheap for a company with 14% growth."
All told, around $63 Cramer thinks PetSmart is a buy.
As outlined above, "I think this stock represents terrific value," Cramer concluded.
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