PetMed Express, Inc. (PETS)

1) Owners love their pets and in most cases will spend $100s if not $1,000s on them each year. It's almost anti-American not to own a cat or dog. (I'm a dog person myself.)

2) I ran two screens using Schwab's tools (Schwab's SER grades PETS an F.) to build a short list of stocks with little to know debt, strong revenue and EPS growth, and company effectiveness. PETS was selected in both screens, with the following data:
Debt-to-Equity = O
5Yr Rev. Growth Rate = 18%
5 Yr EPS Growth Rate = 32%
3Yr Rev. Growth Rate = 17%
3Yr Rev. Growth Rate = 25%
Revenue growth slowing a bit, but remains incredibly strong.
5Yr ROE = 30%
5Yr ROA = 27%

3) What I find super compelling, is the ease and quickness at which PETS can scale up as their customer base increases. PETS is a low capital intensive business, thus no debt. The revenue and net income per employee speaks volumes to support this point:
RPE = $931K vs. $331K
EPE = $100K vs. $31K
Both are versus the drugs industry, which isn't exactly anapples-to-apples comparison, but very telling nonetheless.

4) Of course a strong balance sheet with a quick ratio and current ratio of 7.2 and 9.6, respectively. That's huge. Currently sitting on a pile of $56.2 million in cash.

5) The one risk I see is that their business model can easily be replicated. They should consider increase SGA to build greater market awareness and penatration. Although, PETS did increase their SGA by $30 million from $20.4 in 2008 to $50.3 in 2009. And it looks like they are on track to spend $60 million in 2010.

I wonder if they are setting themselves up as an M&A target?

Cheers and good luck.