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Bear of the Day: Chewy Inc. (CHWY)

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Headquartered in Dania Beach, FL, Chewy Inc. (CHWY - Free Report) is an online pet retailer that offers a wide variety of pet products like food, toys, mats, biscuits, vitamins, and supplements. The Covid-19 pandemic was an enormous boon for Chewy, with pet owners of all kinds turning to the platform for quick and easy delivery of pet supplies.

Mixed Q3 Earnings

Back in December, Chewy reported third quarter results that concerned Wall Street. Despite meaningful sales growth of 24.1% to $2.2 billion, active customer count increasing 14.7%, and sales per active customer jumping 15.4%, investors focused on year-over-year comparisons between 2021 and 2020.

Sales gains have slowed down, and Chewy’s Q3 2020 revenue growth pales in comparison to the 45% sales increase it reported in Q3 2020. The retailer also posted a loss of $0.08 per share for the period, which was in-line with the same quarter last year.

Slowing sales growth has been an issue for Chewy all fiscal year, and investors have zeroed in on the continuing top line deceleration despite the still-impressive expansion the company achieved last quarter.

Bottom Line

CHWY is a Zacks Rank #5 (Strong Sell).

No analyst has cut their full year earnings outlook over the past 60 days, and the consensus estimate has been steady at a loss of $0.07 per share (90 days ago, analysts were eyeing a profit of $0.11 per share). Chewy’s earnings are expected to plunge about 178% for fiscal 2022, though sales are slated to increase 35% for the same period.

Shares of Chewy are down 45% over the last six months as the stock got caught up in the broad-based tech and growth stock sell-off.

Chewy Price and EPS Surprise








Adding to the stock’s woes is bearishness from some on Wall Street.

Piper Sandler analyst Peter Keith lowered his price target for Chewy to $55 from $70 back in early January. Keith pointed to both sales and expenses headwinds, and he also thinks CHWY should be trading at an enterprise-value-to-sales (EV/S) ratio of 1.8; at its peak, CHWY was selling at an EV/S of over 6.

These warnings from Wall Street, coupled with a tough trading environment for high-flying growth stocks, have led investors to reevaluate CHWY. After its recent slide, shares now trade at a price-to-sales ratio of about 2.

Chewy may continue to experience even more wild ups and downs as growth stocks continue to sell off, so potential investors who want to own CHWY for the long term should proceed with caution.

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