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Is it Time to Buy the Dip on Chewy?

Chewy (CHWY) is a leading e-commerce company, specializing in pet care. It has remarkable growth and customer loyalty. Andy Hecht makes his case for why the stock is a buy at current levels.

Stock News- Growth Stocks- Chewy Back In The Buy Zone

  • The stock corrected over 28% and sits closer to the recent low

  • The revenue and earnings trends are bullish

  • Buying the dip in a franchise business on a scale-down basis

Pets are a blessing for many people. The solitude of the global pandemic and social distancing only increased the importance of pets in our lives. Dogs and cats keep us company and offer an unconditional love that goes both ways.

The pets supply business is growing with the global population. At the turn of this century, around six billion people inhabited our planet. Today that number stands at over 7.755, an increase of 29.25% over the past twenty-one years. More people increase the demand for pets and pet supplies. Chewy, Inc. (CHWY), a Florida-based pet supplies company, is a growth stock with incredible potential.

As a pet owner, I can attest to the company’s incredible customer service and attention to detail. CHWY is building its customer base and market penetration level. The company’s shares have recently pulled back from an all-time high, which could be the perfect opportunity to add this company to your portfolio.

We love our pets

Pet ownership has been trending higher in the US.

Source: Statista

As the chart shows, the household penetration rate for pet ownership moved from 56% to 67% from 1988 through 2019. Increasing population and loneliness during the pandemic likely lifted the percentage of households with pets in 2020 and 2021. As the number of pets grows, the demand for pet supplies is moving higher.

Chewy (CHWY) is a technology and pet supplies company

Chewy, Inc. (CHWY) has no retail outlets as the company is a pure e-commerce business in the pet sector. CHWY provides pet food, treats, pet supplies, medications, and other pet-health products for dogs, cats, fish, birds, small pets, horses, and reptiles through its chewy.com retail website. It offers roughly 70,000 products from 2,500 partner brands. Chewy has been around since 2010.

Chewy’s customer service is second to none as the company goes the extra mile with customers. Special touches such as gifts for new pet owners and sympathy packages for those that lose their loved ones build customer loyalty. CHWY’s phone service is personalized, and the company tends to provide speedy delivery.

At around the $86 per share level on April 15 CHWY’s market cap stood at just over $35.5 billion. An average of over 4.79 million shares changes hands each day.

The stock corrected over 28% and sits closer to the recent low

In March 2020, as risk-off conditions gripped markets across all asset classes, CHWY shares reached a low of $20.62.

Source: Barchart

The chart shows that CHWY rose steadily with the stock market over the past year and outperformed all of the leading indices, rising to a high of $120 per share on February 16. Since then, the stock retreated to a low of $75.14 on March 5 and was trading closer to the March low than the February high on Thursday, April 15, at the $86 level, 28.3% below the record peak.

The revenue and earnings trends are bullish

CHWY’s revenue and earnings trend over the past years have been bullish.

Source: Yahoo Finance

The chart shows the impressive rise in revenues since 2018.

Source: Yahoo Finance

CHWY has beat analyst estimates over the past four consecutive quarters, reporting a five cents per share profit in its last report. Analysts expect a four cents loss when CHWY releases its next earnings report on June 7.

A survey of thirteen analysts on Yahoo Finance has an average price target of $101.15 for CHWY shares, with forecasts ranging from $75 to $133. According to Zacks, over the past month, earnings estimates have been moving higher. Zacks currently ranks CHWY shares a #2 buy.

Buying the dip in a franchise business on a scale-down basis

CHWY has done an excellent job building a franchise through customer service in the e-commerce pet supplies sector. The addressable pet market in the US is a growing business. Chewy is a company that combines technology with a business that has loyal repeat customers. CHWY is a growth stock. The nearly 30% dip from the recent all-time high in mid-February is an opportunity to participate in the growing trend of pet ownership in the United States over the coming years. CHWY is a best-in-breed company that should continue to experience growth.

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CHWY shares were trading at $86.11 per share on Thursday afternoon, up $0.55 (+0.64%). Year-to-date, CHWY has declined -4.21%, versus a 11.52% rise in the benchmark S&P 500 index during the same period.



About the Author: Andrew Hecht

Andy spent nearly 35 years on Wall Street and is a sought-after commodity and futures trader, an options expert and analyst. In addition to working with StockNews, he is a top ranked author on Seeking Alpha. Learn more about Andy’s background, along with links to his most recent articles.

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