PetMed Express slides after being accused of 'exploiting' opioid epidemic
Shares of PetMed Express (PETS) are sliding following a short report by Aurelius Value claiming the company is "exploiting" the opioid epidemic in America. Responding to the allegations, the online pet pharmacy said the report was "false and defamatory." 'SECRET SAUCE': According to Aurelius Value, PetMed Express is "exploiting" the opioid epidemic in America. Amid increasing competition, PetMed's business had stagnated for most of the past seven years before sales and earnings suddenly began to surge, the report noted, claiming that the "secret sauce" lies in the company's efforts to "aggressively market dangerous painkillers to human opiate addicts and drug users." Aurelius Value argues that the company's broad marketing campaign features Tramadol, which is prescribed by vets to animals as well as by doctors to human cancer patients, in ads that specifically target and "bait" human opiate users, which is likely to capture the attention of regulators. Using Google, which drives 55% of the traffic to its website, "PetMed has deployed a vast predatory campaign that dangles ads featuring pictures of Tramadol to drug users searching for how to get high or quickly score a variety of different opiates, narcotics, and street drugs without a prescription," the report added. 'FALSE' REPORT: In response to Aurelius Value's report, PetMed issued a statement calling the report "false and defamatory". "We believe that this 'report' was intended to severely manipulate our stock price downward in support of short sellers. PetMed Express categorically denies the allegations and its implications. We are in the process of reporting this manipulation to the appropriate regulators. While the Company dispenses Tramadol and Gabapentin, which represent less than 1% of annual revenue, it is done exclusively pursuant to valid prescriptions from veterinarians for the treatment of animals only. PetMed Express will defend itself vigorously against these false allegations, and is also reviewing all legal options at its disposal to hold the author(s) of this article responsible for the baseless attack which has, as of this press release, caused its stock to decrease substantially. Shareholders are cautioned against reacting to the false statements being made. Our financial statements have been and are routinely audited; and we reiterate that we stand behind the integrity of our financial statements and SEC filings," the company added. WHAT'S NOTABLE: In a pre-open note, Northcoast analyst Ed Snyder said that while PetMed's shares have been trading down recently, the company is benefiting from offering a broader selection of SKUs versus the competition, increased prices year-over-year in the high-volume flea and tick and heartworm categories, and strong market adoption of next generation flea and tick chewable products, which is driving revenue growth and margin performance. Snyder noted that PetMed faces limited online competition in these products, and believes treads are sustainable. The analyst recommended investors take positions in the shares given the temporary weakness. He reiterated a Buy rating and a $54 price target on the shares. PRICE ACTION: In afternoon trading, shares of PetMed have dropped almost 7% to $36.77.