Like many small cap stocks on the Alternative Investment Market, shares in vet supplies and pet care group Animalcare (LON:ANCR) were hit hard by the impact of volatile investor sentiment this summer. Nevertheless, the stock has since rebounded and with news of a strong performance last year, chief executive Stephen Wildridge is confident that the company can continue to outperform its peers in the coming 12 months.

Animalcare splits its operations into three divisions – Licensed Veterinary Medicines, Companion Animal ID, which includes microchips and insurance, and, finally, other products such as theatre equipment and infusion accessories. Last September, the group sold its non-core agricultural supplies business in order to focus on the growth opportunities in veterinary pharmaceuticals and pet supplies. Despite operating in a market that witnessed very little growth last year, Animalcare still managed to drive up revenues by 5.4% to £11.8m, with underlying pre-tax profits from continuing operations up 21.0% to £3.0m. Cash balances stood at around £1.2 million at the year end and the company paid a total dividend of 4p, up by 1p on last year.

The upcoming Stockopedia Premium investor toolkit shows Animalcare to have grown normalised revenues and earnings per share by 8.5% and 5.3% compounded over the last 5 years, with analysts at Brewin Dolphin and Edison Investment Research apparently expecting a consensus 10% further growth in EPS over the next rolling 12 months. The company has grown its operating margins to almost 25% and return on equity to almost 15% in recent years which are extremely high in comparison to its sector and the market as a whole. The company boasts a good financial health trend (Piotroski score of 8) with little to no net debt and no red flags in our system over the accounts. Income investors will note the company’s progressive dividend policy which has provided 17% compounded growth of dividends in the last five years, up to a forecast yield of 2.63%.

While the company is giving a good fundamental picture, it does appear relatively fully valued at these levels, with a normalised P/E higher than the database average and a PEG of 1.5. The share price has been extremely volatile of late, including a near 30% decline in the market weakness, but it has bounced back strongly to show positive relative strength against the stock market…

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