The Greencross Limited (ASX: GXL) share price is currently sitting at $5.30, which is almost the lowest it has been since 2013, it has only been lower for four short periods of time since 2013.
Investors have punished the pet giant of Australia significantly after it seemed like the company's overseas peers were coming under pressure from online competitors.
However, I have long been a fan of Greencross for a number of reasons and I believe it looks attractive:
Valuation
Greencross is trading at a current valuation of around 14x FY18's estimated earnings. This is quite low and has the added benefit of boosting the dividend yield up to 5.26%.
The lower a price/earnings ratio the less growth the market believes that business is going to generate. Considering Greencross grew its earnings per share (EPS) by 7% in the half-year (HY) to 31 December 2017, I think a forward p/e ratio of 14x is attractive value.
Co-location strategy
One of the key parts to an investment case in Greencross is its co-location strategy of putting Greencross vets inside Petbarn stores. This saves on rental costs for both businesses and hopefully allows for cross-selling between the two sets of customers.
It's also a much cheaper way to expand the veterinary clinic network for Greencross, with the cost of setting up a clinic several hundred thousand dollars cheaper on average than just acquiring an existing clinic.
Defensive and growing earnings
Greencross is experiencing solid growth across the board in its businesses. In the HY18 report group like for like (LFL) sales growth was 4.5% and there was a 92% increase in Australian online sales. The gross margin of the business increased to 56.4% from 55.7% a year earlier.
Specialist and emergency hospitals achieved 31% revenue growth with continued network expansion.
Three quarters of dogs and two thirds of cats go to the vet each year, providing Greencross with a good source of recurring revenue. Our pets can't go without food and other essentials, meaning Petbarn also gets a lot of regular transactions from customers.
Foolish takeaway
I think there's a lot to like about Greencross and I believe the business has a good growth trajectory over the next few years as long as profit margins don't start going down. I'd be happy to buy shares of Greencross today at the current price and I may do so if the price stays around this level for a while.
