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As Chewy Stock hits $100, is it Still a Buy?

The online retailer of pet food and other pet-related products, Chewy (CHWY), is strategically positioned to soar with a continued increase in pet ownership in the United States. Despite hitting its all-time high, CHWY is expected to gain soon based on increasing consumer demand for e-commerce and the company’s exceptional customer service.

Headquartered in Dania Beach, Florida, Chewy, Inc. (CHWY) is an online seller of branded and private-label pet food and grooming supplies. The company offers its products and services through its website and mobile applications.

Along with marketing more than 2,000 brands and a wide selection of items totaling more than 45,000, the company also offers fast one- or two-day delivery service and 24/7 assistance to its customers.

CHWY ’s relentless focus on execution and inventiveness has led to record net sales in its last reported quarter. CHWY has also been introducing compelling merchandise and has improved its discoverability.

On a year-to-date basis, the stock has rallied more than 225%, and it broke $100 per share this morning. This impressive performance and potential upside based on a few factors have helped the stock earn a “Strong Buy” rating in our proprietary rating system.

Here is how our proprietary POWR Ratings system evaluates CHWY:

Trade Grade: A

CHWY is currently trading above its 50-day and 200-day moving averages of $71.05 and $58.57, respectively, indicating an uptrend. Moreover, CHWY has gained 46.3% over the past month, reflecting a solid short-term bullishness.

The company’s net sales have increased 45% year-over-year to $1.9 billion for the third quarter ended October 31, 2020. Gross profit has increased 55.8% year-over-year to $454.6 million, yielding a gross margin of 25.5%. Its active customers have increased 39.8% year-over-year to 17.8 million.

On December 4, CHWY announced that its CEO, Sumit Singh, has been named to the Bloomberg Businessweek's 2020 ‘Bloomberg 50’ List. In addition to the company’s newly debuted “Connect with a Vet'' telehealth service, on November 12, the company announced that it is expanding its Pharmacy (Rx) business to offer medications that are customized to the specific needs of the pets.

Buy & Hold Grade: A

In terms of proximity to its 52-week high, which is a key factor that our Buy & Hold Grade considers, CHWY is well positioned. The stock broke its previous 52-week high (also its all-time high) today of $94.56.

The company has grown over the years with the increasing number of pet ownerships in the U.S. Also, CHWY has managed to retain and attract new customers with its focus on personalization of products.

Peer Grade: A

CHWY is currently ranked #3of 36 stocks in the Consumer Goods industry. Other popular stocks in the consumer goods group are Procter & Gamble Company (PG), Colgate-Palmolive Company (CL), and Avantor, Inc. (AVTR).

CHWY has comfortably beaten the returns of these popular industry participants over the past year. PG, CL, and AVTR have gained 9.3%, 23.5% and 48.3%, respectively, over the same period.

Industry Rank: B

The Consumer Goods industry is ranked #30 of the 123 industries. There is year-round demand for the goods and services provided by the companies in this industry.

Even when the economy came to a temporary halt due to the COVID-19 pandemic, consumer demand kept increasing because people cannot do without some of life’s necessities. Companies adapted to new ways of doing business amid the pandemic to stay-afloat. The consumer goods sector is generally defensive and expected to see steady demand in most economic conditions.

Overall POWR Rating: A (Strong Buy)

CHWY is rated “Strong Buy” due to its short-and-long-term bullishness, solid growth prospects, and underlying industry strength, as determined by the four components of our overall POWR Rating.

Bottom Line

CHWY has the potential to soar in the upcoming months despite gaining 235.8% over the past year, based on its continued business growth, favorable earnings and revenue outlook, and strong financials.

The consensus revenue estimate of $7.06 billion for 2021 indicates a 45.7% increase year-over-year. Its EPS is expected to grow at 39.7% in 2021. CHWY has an impressive earnings surprise history with the company beating consensus EPS estimates in each of the trailing four quarters. This outlook should keep the company’s price momentum going in the near term.

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CHWY shares were trading at $98.80 per share on Thursday afternoon, up $4.68 (+4.97%). Year-to-date, CHWY has gained 240.69%, versus a 17.20% rise in the benchmark S&P 500 index during the same period.

About the Author: Manisha Chatterjee

Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst.


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