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Chewy (CHWY) Up 42% in 3 Months: Is It Too Late to Invest In?
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Chewy Inc. (CHWY - Free Report) has experienced a remarkable surge in its stock price over the past three months. The stock has rallied 42.5%, comfortably outpacing the industry’s modest rise of 1.9%. Chewy’s unmatched scale and operational capabilities have also helped it outperform the broader Consumer Staples sector and the S&P 500 index, which posted respective gains of 1.1% and 8.6%.
This impressive uptick has left many investors wondering if they missed out on a lucrative opportunity or if there’s still potential for growth. Closing at $24.80 as of Jul 8, Chewy stock is currently trading 37.2% below its 52-week high of $39.46 attained on Jul 17, 2023.
Image Source: Zacks Investment Research
Technical indicators are supportive of Chewy's strong performance. The stock is trading above both its 50-day and 200-day moving averages, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in Chewy's financial health and prospects.
Image Source: Zacks Investment Research
Decoding Tailwinds
Chewy has established itself as a formidable player in the online pet retail market, and recent performance metrics suggest that the company is well-positioned for long-term growth, making it an attractive bet for investors.
Starting the year on a strong note, Chewy reported impressive financial results for the first quarter of 2024, surpassing the high end of its guidance range with net sales of $2.88 billion, a 3% increase year over year. This robust performance is largely attributable to the company's effective strategies in enhancing customer loyalty in nondiscretionary categories like consumables and health products, which made up approximately 85% of first-quarter net sales. Moreover, the Autoship program continues to thrive, achieving record sales of $2.2 billion, representing 77.6% of total net sales.
An important aspect of Chewy's growth strategy is the introduction of the Chewy Plus membership program. The program offers benefits like free shipping, cash accrual rewards and exclusive member perks. Currently in its beta phase, Chewy Plus aims to enhance customer engagement and drive incremental sales through personalized experiences and increased wallet share.
Chewy’s expansion into the veterinary services market is another promising avenue for growth. With the opening of three additional vet care clinics, the company now operates four clinics and plans to open more throughout the year. This initiative is off to a strong start, with high staffing levels and positive customer feedback, indicating that Chewy's unique value proposition is resonating well with pet owners.
The company's sponsored ads business is also on an upward trajectory, offering a high return on investment for partners and is expected to scale to 1% to 3% of net sales in the long term. This growth is crucial for diversifying Chewy's revenue streams and enhancing overall profitability.
Chewy's international expansion efforts, particularly in Canada, are progressing as planned. The company has introduced customer-facing features like a mobile app and additional payment options and has expanded its product assortment, especially in premium consumables. High customer satisfaction and growing brand awareness suggest that Chewy is poised to capture a significant share of the Canadian pet retail market.
Shareholder-Friendly Moves
Chewy's solid financial position allows it to enhance shareholder value through a newly authorized share repurchase program of up to $500 million. In the first quarter of fiscal 2024, Chewy generated a free cash flow of $52.6 million, supported by $81.9 million in net cash provided by operating activities. Ending the quarter with more than $1.1 billion in cash, cash equivalents and marketable securities, Chewy maintains a debt-free status, bolstering its financial flexibility to execute shareholder-friendly initiatives.
Growth Prospects Ahead?
Chewy maintains its fiscal 2024 net sales outlook in the band of $11.6 billion-$11.8 billion, projecting 4% to 6% year-over-year growth. Additionally, the company has raised its adjusted EBITDA margin guidance to a range of 4.1%-4.3%, demonstrating robust profitability expectations.
With capital expenditures expected to be 1.5% to 2% of net sales and free cash flow conversion above 80%, Chewy is well-equipped to sustain its financial strength and strategic growth.
Unlocking Value
From a valuation perspective, Chewy shares present an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-sales ratio of 0.90, below the five-year median of 1.78 and the industry’s average of 1.28, the stock offers compelling value for investors seeking exposure to the sector.
Image Source: Zacks Investment Research
Estimate Revision Favoring the Stock
Reflecting the positive sentiment around Chewy, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 60 days, analysts have increased their estimates for both the current and next fiscal year by 15.7% to 96 cents and by 18.9% to $1.13 per share, respectively. These estimates indicate expected year-over-year growth rates of 39.1% and 16.8%, respectively.
Image Source: Zacks Investment Research
You Can Still Wet Your Toes
Chewy has showcased strong performance, marked by substantial stock appreciation, robust financial metrics and strategic initiatives set to propel future growth in a competitive landscape that includes Petco Health and Wellness Company, Inc. (WOOF - Free Report) and BARK, Inc. (BARK - Free Report) . Despite its recent surge, Chewy's stock continues to offer attractive valuation metrics alongside promising growth prospects. For investors seeking a resilient and growth-oriented stock, CHWY presents a compelling investment opportunity. Keith Gill, also known as “Roaring Kitty” and famous for his role in the GameStop Corp. (GME - Free Report) rally, has disclosed a 6.6% stake in this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank stocks here.
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Chewy (CHWY) Up 42% in 3 Months: Is It Too Late to Invest In?
Chewy Inc. (CHWY - Free Report) has experienced a remarkable surge in its stock price over the past three months. The stock has rallied 42.5%, comfortably outpacing the industry’s modest rise of 1.9%. Chewy’s unmatched scale and operational capabilities have also helped it outperform the broader Consumer Staples sector and the S&P 500 index, which posted respective gains of 1.1% and 8.6%.
This impressive uptick has left many investors wondering if they missed out on a lucrative opportunity or if there’s still potential for growth. Closing at $24.80 as of Jul 8, Chewy stock is currently trading 37.2% below its 52-week high of $39.46 attained on Jul 17, 2023.
Image Source: Zacks Investment Research
Technical indicators are supportive of Chewy's strong performance. The stock is trading above both its 50-day and 200-day moving averages, indicating robust upward momentum and price stability. This technical strength reflects positive market perception and confidence in Chewy's financial health and prospects.
Image Source: Zacks Investment Research
Decoding Tailwinds
Chewy has established itself as a formidable player in the online pet retail market, and recent performance metrics suggest that the company is well-positioned for long-term growth, making it an attractive bet for investors.
Starting the year on a strong note, Chewy reported impressive financial results for the first quarter of 2024, surpassing the high end of its guidance range with net sales of $2.88 billion, a 3% increase year over year. This robust performance is largely attributable to the company's effective strategies in enhancing customer loyalty in nondiscretionary categories like consumables and health products, which made up approximately 85% of first-quarter net sales. Moreover, the Autoship program continues to thrive, achieving record sales of $2.2 billion, representing 77.6% of total net sales.
An important aspect of Chewy's growth strategy is the introduction of the Chewy Plus membership program. The program offers benefits like free shipping, cash accrual rewards and exclusive member perks. Currently in its beta phase, Chewy Plus aims to enhance customer engagement and drive incremental sales through personalized experiences and increased wallet share.
Chewy’s expansion into the veterinary services market is another promising avenue for growth. With the opening of three additional vet care clinics, the company now operates four clinics and plans to open more throughout the year. This initiative is off to a strong start, with high staffing levels and positive customer feedback, indicating that Chewy's unique value proposition is resonating well with pet owners.
The company's sponsored ads business is also on an upward trajectory, offering a high return on investment for partners and is expected to scale to 1% to 3% of net sales in the long term. This growth is crucial for diversifying Chewy's revenue streams and enhancing overall profitability.
Chewy's international expansion efforts, particularly in Canada, are progressing as planned. The company has introduced customer-facing features like a mobile app and additional payment options and has expanded its product assortment, especially in premium consumables. High customer satisfaction and growing brand awareness suggest that Chewy is poised to capture a significant share of the Canadian pet retail market.
Shareholder-Friendly Moves
Chewy's solid financial position allows it to enhance shareholder value through a newly authorized share repurchase program of up to $500 million. In the first quarter of fiscal 2024, Chewy generated a free cash flow of $52.6 million, supported by $81.9 million in net cash provided by operating activities. Ending the quarter with more than $1.1 billion in cash, cash equivalents and marketable securities, Chewy maintains a debt-free status, bolstering its financial flexibility to execute shareholder-friendly initiatives.
Growth Prospects Ahead?
Chewy maintains its fiscal 2024 net sales outlook in the band of $11.6 billion-$11.8 billion, projecting 4% to 6% year-over-year growth. Additionally, the company has raised its adjusted EBITDA margin guidance to a range of 4.1%-4.3%, demonstrating robust profitability expectations.
With capital expenditures expected to be 1.5% to 2% of net sales and free cash flow conversion above 80%, Chewy is well-equipped to sustain its financial strength and strategic growth.
Unlocking Value
From a valuation perspective, Chewy shares present an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-sales ratio of 0.90, below the five-year median of 1.78 and the industry’s average of 1.28, the stock offers compelling value for investors seeking exposure to the sector.
Image Source: Zacks Investment Research
Estimate Revision Favoring the Stock
Reflecting the positive sentiment around Chewy, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 60 days, analysts have increased their estimates for both the current and next fiscal year by 15.7% to 96 cents and by 18.9% to $1.13 per share, respectively. These estimates indicate expected year-over-year growth rates of 39.1% and 16.8%, respectively.
Image Source: Zacks Investment Research
You Can Still Wet Your Toes
Chewy has showcased strong performance, marked by substantial stock appreciation, robust financial metrics and strategic initiatives set to propel future growth in a competitive landscape that includes Petco Health and Wellness Company, Inc. (WOOF - Free Report) and BARK, Inc. (BARK - Free Report) . Despite its recent surge, Chewy's stock continues to offer attractive valuation metrics alongside promising growth prospects. For investors seeking a resilient and growth-oriented stock, CHWY presents a compelling investment opportunity. Keith Gill, also known as “Roaring Kitty” and famous for his role in the GameStop Corp. (GME - Free Report) rally, has disclosed a 6.6% stake in this Zacks Rank #1 (Strong Buy) company. You can see the complete list of today’s Zacks #1 Rank stocks here.