Why PetMed Express Inc.'s Shares Plunged in August

Assortment of pills laying on a white table.

What happened

Shares of PetMed Express Inc. (NASDAQ: PETS) fell 23.7% in August, according to data provided by S&P Global Market Intelligence , after a notable short seller took dead aim at the stock. Research firm Aurelius Valuelaid out the case that PetMed's new growth products were actually aimed at distributing opioid drugs to people through animal prescriptions. If true, that would be concerning indeed.

So what

The big plunge happened on Aug. 23 when short seller Aurelius Value issued a report raising concerns about how the "new generation of medications" PetMed has credited for its recent sales gains were in fact opioids that were being prescribed to pet, but being used by human addicts. Among the most concerning pieces of evidence in the report were screenshots of Google searches that showed 1-800-PetMeds as a top sponsored shopping result for those searching to buy opiates online for personal drug use.

Assortment of pills laying on a white table.

Image source: Getty Images.

Shortly after the report came out, management said that opiates Tramadol and Gabapentin were not targeting human opioid users, and weren't the growth products they had been talking about in conference calls. They said the new generation of products were a "new generation flea, tick, and heartworm control products", which would have been easy to disclose earlier. In any case, a number of investigations were opened by law firms on subsequent days, so this isn't the last we've heard of PetMed and its new product growth.

Now what

We still don't know whether the short seller's thesis is correct, but right now, the market sees too much risk to start buying the stock again. It's at least concerning that PetMed shows up as an opiate for humans in sponsored Google search results; that's something management needs to address quickly. This may also force more disclosure on what treatments the company is selling, and where its revenue and earnings growth is coming from. And better disclosure could be good for investors and management alike.

10 stocks we like better than PetMed Express

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and PetMed Express wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of August 1, 2017

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Travis Hoium has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Alphabet (A shares) and Alphabet (C shares). The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

More Related Articles

Info icon

This data feed is not available at this time.

Sign up for the TradeTalks newsletter to receive your weekly dose of trading news, trends and education. Delivered Wednesdays.