Petco Stock Just Surged 52% In a Week. Should You Buy In?

Petco Health and Wellness (NASDAQ: WOOF) just posted its first profitable year since 2022, and the stock surged 34.6% in a single session. The stock is up over 52% in the last week, so the question now is, "Is the dip already over, or is there still meat on this bone?"

Let's start with the numbers that matter. In fiscal 2025 (ended Jan. 31, 2026), Petco swung from a $101.8 million net loss to a $9.1 million net profit. Operating cash flow surged 77% to $314.1 million. The company voluntarily paid down $95 million in debt and ended the year with $256.7 million in cash, up $91 million from the prior year. Inventory fell 9.7% while sales declined just 2.5%, which means Petco is selling leaner, not just selling less.

Image source: Getty Images.

Debt refinancing helps return the company to profitability

The leverage ratio improved from 4.2 to 3.0. That's the number that changes the risk profile entirely. A year ago, the market priced Petco like a company headed for a liquidity crisis. The stock dropped 30% over 120 days. But the balance sheet now tells a different story: debt refinanced to 2031, no near-term maturities, and enough cash flow to keep chipping away at the $1.5 billion in long-term debt.

In other, simpler words, Petco improved its financial health in 2025, returning to profitability, boosting cash flow, reducing debt and inventory, and lowering leverage, thereby reducing the company's financial risk.

CEO Joel Anderson calls the new phase "Reach for the Sky," and the name is less important than the substance behind it. The company spent two years cutting unprofitable sales, closing underperforming stores (seven net closures in fiscal 2025, with 15-20 more planned for 2026), and rebuilding margins.

Gross margin expanded 66 basis points to 38.7%. Selling, general, and administrative leverage improved by 124 basis points. Operating margin expanded 190 basis points.

All of this happened while the top line was shrinking.

Can Petco keep going?

Management guided for flat to 1.5% sales growth in fiscal 2026 with adjusted earnings before interest, taxes, depreciation, and amortization of $415 million to $430 million. That guidance implies a return to positive comparable store sales for the first time in years.

The growth strategy rests on three pillars: services (grooming, training, vet care), fresh food and premium consumables, and proprietary brands. Services carry higher margins and create recurring visits. Fresh food drives basket size. Proprietary brands improve margin per unit.

Here's the underappreciated detail. Petco operates 1,382 stores that double as service hubs. This is a move that no pure-play e-commerce pet company can replicate. Chewy can ship kibble. It can't give your dog a haircut, administer a vaccine, or run a training class.

That physical moat matters more as Petco leans into services as a percentage of revenue.

The risk is straightforward: The top line hasn't turned yet. Comparable-store sales declined 1.6% in Q4. Petco is surging with $1.5 billion in debt and interest coverage of just 1x earnings before interest and taxes. If comps don't flip positive in 2026, the margin story runs out of runway.

For now, I'm going to stay away from Petco stock. Petco has had a killer week, and I'm going to wait for a brief short-term rebound before buying in. But if Petco continues to execute on its own guidance, the current price looks like a strong long-term entry point.

Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.