A Case Study in a Strong Business Model

In a recent column, I perused that the best place to be in the stock market right now is the small-cap sector. I am biased towards this market sector because I spend all my time researching small companies, but the numbers speak for themselves. Across the board, all sorts of small American companies are thriving in the domestic economy.

Long-time readers are familiar with my affinity for investments in the pet care industry, and one the most exciting companies in this market sector is seeing a lot of price momentum right now. PetMed Express Inc. (NASDAQ/PETS) just broke through the $10 per share level and trading volume has been rising.

This small-cap company is in the business of selling veterinary medications and other pet care products over the Internet and by phone. The idea is to bypass your traditional veterinary hospital by purchasing known products for cheaper prices. Needless to say, traditional veterinarians aren’t happy with PetMed Express, because the company is creating competition for expensive pet pharmaceuticals. This is why the company is so successful–a revolution was long overdue in the veterinary business.

In my view, PetMed Express Inc. should be a case study at business schools across the country. Its business model is simple and successful. The company hasn’t tried to become a giant overnight. Instead, it has chosen to expand in a diligent and manageable fashion, while maintaining focus on providing strong customer service. The result is a lot of happy customers who provide the company with a lot of repeat business. Naturally, existing customers are much more cost effective to service than acquiring new customers.

This is but one of many companies that I’m finding in this market that are true innovators in their industries. These successful, innovating companies aren’t reinventing the wheel; they’re only making existing industries much better.