Is Petco Health & Wellness Company, Inc. overvalued or undervalued?

As of 29 November 2023, the valuation grade for Petco Health & Wellness Company, Inc. has moved from fair to risky, indicating a significant deterioration in its financial outlook. The company is currently considered overvalued, particularly given its P/E ratio is not applicable due to losses, while its Price to Book Value stands at 0.69, and its EV to EBITDA is at 9.62. Additionally, the Return on Capital Employed (ROCE) is a mere 2.20%, and the Return on Equity (ROE) is negative at -4.66%, further underscoring the company's financial struggles.
In comparison to its peers, Petco's valuation appears unfavorable; for instance, its EV to EBITDA ratio is significantly higher than the industry average, which suggests that investors are paying a premium for its earnings potential that is not being realized. Notably, the company's stock has underperformed against the S&P 500, with a year-to-date decline of 28.61% compared to a modest gain of 2.44% for the index. This performance, combined with the company's current financial ratios, solidifies the conclusion that Petco Health & Wellness Company, Inc. is overvalued in the current market environment.