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Chewy (CHWY) Up 51% in 3 Months: Lock in Gains or Ride the Rally?
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Chewy Inc. (CHWY - Free Report) has delivered a remarkable performance over the past three months, with its stock price soaring 51.3%. This impressive gain stands in sharp contrast to the industry, which has seen a decline of 7.6% in the same period. Chewy's robust operational scale and capabilities have enabled it to outperform the Retail - Wholesale sector’s 3.2% fall and the S&P 500 index’s 0.5% rise.
Given this significant rally, a crucial question arises for investors: Is it time to capitalize on these gains or stay bullish on the stock?
As of Aug 13, the CHWY stock closed at $24.69, trading 36.9% below its 52-week high of $39.10, achieved on Jun 27, 2024. Despite the recent volatility, partly influenced by meme-stock traders, Chewy's strong financials and growth trajectory continue to make it a compelling option for those weighing their investment strategy.
Image Source: Zacks Investment Research
Technical indicators support CHWY's strong performance, with the stock trading above both its 100-day and 200-day moving averages. This suggests solid upward momentum and price stability, reflecting positive market sentiment and confidence in Chewy's financial strength and growth prospects. This pullback from the peak might offer a buying opportunity for investors looking to capitalize on future gains.
Image Source: Zacks Investment Research
Growth Drivers
Chewy has solidified its position as a leading player in the online pet retail industry, with recent performance metrics indicating strong potential for long-term growth, making it a compelling choice for investors.
CHWY kicked off the year with impressive financial results, reporting first-quarter 2024 net sales of $2.88 billion, a 3.1% year-over-year increase, exceeding the high end of its guidance range. This strong performance is largely driven by the company’s successful strategies in bolstering customer loyalty in non-discretionary categories such as consumables and health products, which accounted for approximately 85% of first-quarter net sales. Additionally, the Autoship program continues to excel, reaching record sales of $2.2 billion, representing 77.6% of total net sales.
The first quarter of 2024 also saw positive trends in customer acquisition and retention. Reactivated customers grew in the mid-teens range from the previous year, highlighting the effectiveness of Chewy’s personalized marketing efforts. This rebound in customer growth is a promising sign for future sales expansion and underscores the success of the company’s engagement strategies.
A key component of CHWY's growth strategy is the launch of the Chewy Plus membership program. This program, currently in its beta phase, offers benefits like free shipping, cash rewards and exclusive perks. Chewy Plus aims to deepen customer engagement and boost sales through personalized experiences and increased wallet share.
Chewy’s expansion into the veterinary services sector is another promising growth avenue. With three additional vet care clinics opened, bringing the total to four, the company plans to open more throughout the year. This initiative has had a strong start, with high staffing levels and positive customer feedback, suggesting that Chewy's unique value proposition is resonating well with pet owners.
The company's sponsored ads business is also gaining momentum, providing a high return on investment for partners and is expected to scale to 1-3% of net sales in the long term. This growth is key to diversifying Chewy's revenue streams and improving overall profitability.
CHWY’s international expansion, particularly in Canada, is progressing smoothly. The company has rolled out customer-facing features like a mobile app and additional payment options, while also expanding its product assortment, especially in premium consumables. With high customer satisfaction and increasing brand awareness, the company is well-positioned to capture a significant share of the Canadian pet retail market.
CHWY Leverages Strong Liquidity
Chewy's strong financial standing enables it to increase shareholder value through a newly authorized share repurchase program of up to $500 million. In the first quarter of fiscal 2024, CHWY generated $52.6 million in free cash flow, underpinned by $81.9 million in net cash from operating activities. The company ended the quarter with more than $1.1 billion in cash, cash equivalents and marketable securities, maintaining a debt-free balance sheet. With a robust liquidity position of $1.9 billion, Chewy is well-equipped to pursue shareholder-friendly initiatives and maintain financial flexibility.
Upbeat Outlook
For the second quarter of 2024, CHWY projects net sales between $2.84 billion and $2.86 billion, indicating year-over-year growth of 2-3%. The company maintained its 2024 net sales forecast of $11.6-$11.8 billion, anticipating a 4-6% increase from the previous year. Moreover, Chewy elevated its adjusted EBITDA margin guidance to 4.1-4.3%, signaling strong expectations for profitability.
With capital expenditure projected at 1.5-2% of net sales, and free cash flow conversion expected above 80%, Chewy is positioned to maintain its financial stability and support its growth initiatives.
Attractive Valuation
From a valuation perspective, the CHWY stock presents an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-sales ratio of 0.89, below the five-year median of 1.73 and the industry’s average of 1.73, the stock offers compelling value for investors seeking exposure to the sector. The company currently has a Value Score of B, further validating its appeal.
Image Source: Zacks Investment Research
How are Estimates Faring?
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 the current and next years by 1 penny to 96 cents and by 2 cents to $1.13 per share, respectively. These estimates indicate year-over-year growth rates of 39.1% and 16.8%, respectively.
Image Source: Zacks Investment Research
Investor Guidance
Chewy has showcased strong performance, marked by substantial stock appreciation, robust financial metrics and strategic initiatives set to propel growth in a competitive market 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 51% in 3 Months: Lock in Gains or Ride the Rally?
Chewy Inc. (CHWY - Free Report) has delivered a remarkable performance over the past three months, with its stock price soaring 51.3%. This impressive gain stands in sharp contrast to the industry, which has seen a decline of 7.6% in the same period. Chewy's robust operational scale and capabilities have enabled it to outperform the Retail - Wholesale sector’s 3.2% fall and the S&P 500 index’s 0.5% rise.
Given this significant rally, a crucial question arises for investors: Is it time to capitalize on these gains or stay bullish on the stock?
As of Aug 13, the CHWY stock closed at $24.69, trading 36.9% below its 52-week high of $39.10, achieved on Jun 27, 2024. Despite the recent volatility, partly influenced by meme-stock traders, Chewy's strong financials and growth trajectory continue to make it a compelling option for those weighing their investment strategy.
Image Source: Zacks Investment Research
Technical indicators support CHWY's strong performance, with the stock trading above both its 100-day and 200-day moving averages. This suggests solid upward momentum and price stability, reflecting positive market sentiment and confidence in Chewy's financial strength and growth prospects. This pullback from the peak might offer a buying opportunity for investors looking to capitalize on future gains.
Image Source: Zacks Investment Research
Growth Drivers
Chewy has solidified its position as a leading player in the online pet retail industry, with recent performance metrics indicating strong potential for long-term growth, making it a compelling choice for investors.
CHWY kicked off the year with impressive financial results, reporting first-quarter 2024 net sales of $2.88 billion, a 3.1% year-over-year increase, exceeding the high end of its guidance range. This strong performance is largely driven by the company’s successful strategies in bolstering customer loyalty in non-discretionary categories such as consumables and health products, which accounted for approximately 85% of first-quarter net sales. Additionally, the Autoship program continues to excel, reaching record sales of $2.2 billion, representing 77.6% of total net sales.
The first quarter of 2024 also saw positive trends in customer acquisition and retention. Reactivated customers grew in the mid-teens range from the previous year, highlighting the effectiveness of Chewy’s personalized marketing efforts. This rebound in customer growth is a promising sign for future sales expansion and underscores the success of the company’s engagement strategies.
A key component of CHWY's growth strategy is the launch of the Chewy Plus membership program. This program, currently in its beta phase, offers benefits like free shipping, cash rewards and exclusive perks. Chewy Plus aims to deepen customer engagement and boost sales through personalized experiences and increased wallet share.
Chewy’s expansion into the veterinary services sector is another promising growth avenue. With three additional vet care clinics opened, bringing the total to four, the company plans to open more throughout the year. This initiative has had a strong start, with high staffing levels and positive customer feedback, suggesting that Chewy's unique value proposition is resonating well with pet owners.
The company's sponsored ads business is also gaining momentum, providing a high return on investment for partners and is expected to scale to 1-3% of net sales in the long term. This growth is key to diversifying Chewy's revenue streams and improving overall profitability.
CHWY’s international expansion, particularly in Canada, is progressing smoothly. The company has rolled out customer-facing features like a mobile app and additional payment options, while also expanding its product assortment, especially in premium consumables. With high customer satisfaction and increasing brand awareness, the company is well-positioned to capture a significant share of the Canadian pet retail market.
CHWY Leverages Strong Liquidity
Chewy's strong financial standing enables it to increase shareholder value through a newly authorized share repurchase program of up to $500 million. In the first quarter of fiscal 2024, CHWY generated $52.6 million in free cash flow, underpinned by $81.9 million in net cash from operating activities. The company ended the quarter with more than $1.1 billion in cash, cash equivalents and marketable securities, maintaining a debt-free balance sheet. With a robust liquidity position of $1.9 billion, Chewy is well-equipped to pursue shareholder-friendly initiatives and maintain financial flexibility.
Upbeat Outlook
For the second quarter of 2024, CHWY projects net sales between $2.84 billion and $2.86 billion, indicating year-over-year growth of 2-3%. The company maintained its 2024 net sales forecast of $11.6-$11.8 billion, anticipating a 4-6% increase from the previous year. Moreover, Chewy elevated its adjusted EBITDA margin guidance to 4.1-4.3%, signaling strong expectations for profitability.
With capital expenditure projected at 1.5-2% of net sales, and free cash flow conversion expected above 80%, Chewy is positioned to maintain its financial stability and support its growth initiatives.
Attractive Valuation
From a valuation perspective, the CHWY stock presents an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-sales ratio of 0.89, below the five-year median of 1.73 and the industry’s average of 1.73, the stock offers compelling value for investors seeking exposure to the sector. The company currently has a Value Score of B, further validating its appeal.
Image Source: Zacks Investment Research
How are Estimates Faring?
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 the current and next years by 1 penny to 96 cents and by 2 cents to $1.13 per share, respectively. These estimates indicate year-over-year growth rates of 39.1% and 16.8%, respectively.
Image Source: Zacks Investment Research
Investor Guidance
Chewy has showcased strong performance, marked by substantial stock appreciation, robust financial metrics and strategic initiatives set to propel growth in a competitive market 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.