What is PETQ's Intrinsic value?

PetIQ Inc (PETQ) Intrinsic Value Analysis

Executive Summary

As of June 13, 2025, PetIQ Inc's estimated intrinsic value ranges from $4.18 to $144.02 per share, depending on the valuation methodology applied.

Valuation Method Fair Value (USD) Implied Upside/Downside
Discounted Cash Flow (10Y) $144.02 +364.9%
Discounted Cash Flow (5Y) $74.69 +141.1%
Dividend Discount Model (Multi-Stage) $62.62 +102.1%
Dividend Discount Model (Stable) $16.99 -45.2%
Earnings Power Value $4.18 -86.5%

Is PetIQ Inc (PETQ) undervalued or overvalued?

With the current market price at $30.98, the stock appears to be significantly undervalued.

Understanding Intrinsic Value

Intrinsic value represents the "true" worth of a company based on its fundamentals rather than market sentiment. We've employed multiple methodologies to triangulate PetIQ Inc's intrinsic value, including:

  1. Discounted Cash Flow (DCF): Values the company based on projected future cash flows
  2. Dividend Discount Model (DDM): Values the company based on expected future dividend payments
  3. Earnings Power Value (EPV): Values the company based on its current earnings power, assuming no growth

Weighted Average Cost of Capital (WACC)

The cost of capital is a critical factor in valuation models, representing the required return for investors.

WACC Component Low High
Long-term bond rate 3.9% 4.4%
Equity market risk premium 4.6% 5.6%
Adjusted beta 0.34 0.38
Cost of equity 5.4% 7.0%
Cost of debt 6.0% 7.5%
Tax rate 14.2% 23.7%
Debt/Equity ratio 0.48 0.48
After-tax WACC 5.3% 6.6%

Valuation Methods

1. Discounted Cash Flow (DCF) Valuation

Our DCF model projects cash flows over 5-year and 10-year horizons, with the following key assumptions:

  • Forecast Period: 5-year DCF and 10-year DCF
  • Terminal Growth Rate: 0.0% (range: 3.0% - 5.0%)
  • Discount Rate: 6.0% (range: 0.0% - 9.3%)

Key Projections:

  • Revenue growth from $1,102 (FY12-2023) to $2,832 (FY12-2033)
  • Net profit margin expansion from 0% to 6%
  • Capital expenditures maintained at approximately 4% of revenue
DCF Model Fair Value Enterprise Value % from Terminal Value
5-Year Growth $75 $2,592M 89.9%
10-Year Growth $144 $4,665M 82.0%
5-Year EBITDA $54 $1,987M 86.8%
10-Year EBITDA $97 $3,249M 74.2%

2. Dividend Discount Model (DDM)

The DDM values a company based on its expected future dividend payments. We used two approaches:

Multi-Stage DDM:

  • Current payout ratio: 0.0%
  • Stable payout ratio: 90.0%
  • Growth transition: 5 years
  • Cost of equity: 6.2%
  • Long-term growth rate: 3.0%
  • Fair value: $62.62 (102.1% from current price)

Stable DDM:

  • Stable payout ratio: 70% (Low) to 90% (High)
  • Cost of equity: 7.0% (Low) to 5.4% (High)
  • Long-term growth rate: 2.0% (Low) to 4.0% (High)
  • Fair value range: $6 to $28
  • Selected fair value: $16.99 (-45.2% from current price)

3. Earnings Power Value (EPV)

EPV assesses a company's value based on its current normalized earnings power, assuming no growth.

EPV Component Value
Normalized Earnings $29M
Discount Rate (WACC) 6.6% - 5.3%
Enterprise Value $433M - $535M
Net Debt $359M
Equity Value $74M - $176M
Outstanding Shares 30M
Fair Value $2 - $6
Selected Fair Value $4.18

Key Financial Metrics

Metric Value
Market Capitalization $926M
Enterprise Value $1285M
Trailing P/E 69.95
Forward P/E 55.92
Trailing EV/EBITDA 11.05
Current Dividend Yield 0.00%
Dividend Growth Rate (5Y) 0.00%
Debt-to-Equity Ratio 0.48

Investment Decision Framework

To determine the most reliable intrinsic value estimate, we weigh each valuation method based on:

  1. Forecast Certainty: DCF methods rely on long-term projections, while earnings power value focuses on current normalized earnings
  2. Business Model Alignment: Dividend models are more appropriate for mature companies with established dividend policies
  3. Historical Accuracy: How well each method has predicted fair value historically

Valuation Weight Matrix

Valuation Method Weight Weighted Value
Discounted Cash Flow (10Y) 30% $43.21
Discounted Cash Flow (5Y) 25% $18.67
Dividend Discount Model (Multi-Stage) 20% $12.52
Dividend Discount Model (Stable) 15% $2.55
Earnings Power Value 10% $0.42
Weighted Average 100% $77.37

Investment Conclusion

Based on our comprehensive valuation analysis, PetIQ Inc's weighted average intrinsic value is $77.37, which is approximately 149.7% above the current market price of $30.98.

Key investment considerations:

  • Strong projected earnings growth (0% to 6% margin)
  • Consistent cash flow generation

Given these factors, we believe PetIQ Inc is currently significantly undervalued with the potential for long-term appreciation based on the company's growth trajectory and financial strength.