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Chewy Stock Up 23% in a Month: Is it Time to Buy, Hold or Cash Out?
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Chewy Inc. (CHWY - Free Report) has been riding a wave of momentum, posting a 22.5% gain in the past month. Investors are excited, wondering if the pet e-commerce giant has more room to grow. With Chewy's stock already performing well in the broader market, the key question remains — should you buy more, hold tight or consider cashing out while the momentum lasts?
The stock has comfortably outpaced the industry’s modest rise of 5%. Chewy’s unmatched scale and operational capabilities have also helped it outperform the Retail-Wholesale sector and the S&P 500 index, which posted respective gains of 5% and 0.8%.
Image Source: Zacks Investment Research
The company’s performance is fueled by strong demand for pet products and services, buoyed by a loyal customer base and a growing subscription model. While the numbers are promising, there are challenges on the horizon. Macroeconomic pressures and rising competition in the e-commerce space could influence the stock’s future growth trajectory.
Chewy stock closed at $30.24 during yesterday’s trading session, sitting 22.7% below its 52-week high of $39.10, reached on June 27, 2024. CHWY recently overtook the 20-day moving average, and this suggests a bullish trend. With that in mind, let’s dive into CHWY’s prospects and determine the best course of action for your portfolio.
Image Source: Zacks Investment Research
Chewy's Autoship and Expanding Services Propel Growth
Chewy has established itself as a formidable player in the online pet retail market, and recent performance metrics indicate that the company is well-positioned for long-term growth. This makes it an attractive prospect for investors seeking both stability and upside potential.
In the second quarter of 2024, Chewy reported decent financial results, with net sales reaching $2.86 billion, marking a 2.6% year-over-year increase. While this growth appears modest, it hit the high end of the company’s guidance, demonstrating the resilience of Chewy’s business model, even as the broader pet care market shows signs of normalization.
A primary factor behind this growth was the strength of Chewy’s Autoship program, which saw a 5.8% year-over-year increase in sales, contributing a significant 78.4% of total net sales. Autoship, which functions as a subscription-based service, has become a core component of Chewy’s revenue strategy. The program’s growth is driven by robust demand for non-discretionary categories like consumables and healthcare, which accounted for 85% of total sales during the quarter.
Chewy’s Net Sales Per Active Customer hit a new record at $565, reflecting a 6.2% increase compared to the prior year. This surge is fueled by the company’s premium product offerings, such as high-end pet food and healthcare products, along with strong repeat purchasing from its loyal customer base. At the close of the quarter, Chewy boasted about 20 million active customers.
Chewy’s expansion into veterinary services is another key driver of customer acquisition and retention. In the quarter under discussion, the company opened two more Vet Care clinics, bringing its total to six locations. These clinics not only enhance customer loyalty but also act as strategic entry points for new customers, embedding them into the Chewy ecosystem.
The company’s Sponsored Ads business has exceeded expectations and is on track to reach the lower end of the company’s long-term target of 1% to 3% of net sales by the end of 2024. This growth is supported by expanded inventory, increasing advertiser demand and improved customer relevancy, signaling another strong revenue stream for the future.
Chewy’s Financial Snapshot
Chewy’s strong financial position is validated by its free cash flow generation of $91 million in the second quarter. The company’s ability to consistently generate free cash flow allows it to fund strategic investments, such as expanding its Vet Care clinics and advancing its Sponsored Ads platform.
Chewy ended the quarter with $695 million in cash, cash equivalents and marketable securities while remaining debt-free, which provides it with significant financial flexibility. Chewy also returned capital to shareholders, repurchasing approximately 17.6 million shares for $500 million in a transaction separate from its existing $500 million share repurchase program. It bought back 1.3 million shares for $32.7 million under its authorized program.
Chewy Foresees Sales Growth and Margin Expansion
For the third quarter of fiscal 2024, Chewy anticipates net sales between $2.84 billion and $2.86 billion, which implies year-over-year growth of 3% to 4%. The company also reaffirmed its fiscal 2024 net sales forecast of $11.6 billion to $11.8 billion, suggesting a 4% to 6% increase from the last year.
The adjusted EBITDA margin is now projected between 4.5% and 4.7% for the current fiscal. This marks the second upward revision in the current fiscal year, driven by continued success in improving the product mix and leveraging operational efficiencies.
With capital expenditures projected at 1.5% to 2% of net sales and free cash flow conversion expected to remain above 80%, Chewy is well-positioned to maintain its financial stability and support its strategic growth initiatives.
Is CHWY Still Attractive After Recent Spike in Stock Price?
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 1.04, below the five-year median of 1.70 and the industry’s average of 1.72, 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 Zacks Consensus Estimates Faring for CHWY?
Reflecting the positive sentiment around Chewy, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 30 days, analysts have increased their estimates for the current and next fiscal year by 34.1% to $1.14 and 19.4% to $1.23 per share, respectively. These estimates indicate expected year-over-year growth rates of 65.2% and 8.1%, respectively.
Image Source: Zacks Investment Research
Your Best Investment Play for CHWY Stock
Chewy has showcased strong performance, marked by substantial stock appreciation, robust financial metrics and strategic initiatives aimed at driving future growth in a competitive landscape that includes Petco Health and Wellness Company, Inc. (WOOF - Free Report) , Central Garden & Pet Company (CENT - Free Report) and BARK, Inc. (BARK - Free Report) . The company’s ability to expand high-margin businesses like Vet Care and Sponsored Ads, along with disciplined cost management, supports margin expansion and free cash flow generation.
With a solid balance sheet, consistent capital returns and an optimistic outlook for the remainder of 2024, Chewy presents a compelling investment play for shareholders looking for long-term growth. CHWY currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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Chewy Stock Up 23% in a Month: Is it Time to Buy, Hold or Cash Out?
Chewy Inc. (CHWY - Free Report) has been riding a wave of momentum, posting a 22.5% gain in the past month. Investors are excited, wondering if the pet e-commerce giant has more room to grow. With Chewy's stock already performing well in the broader market, the key question remains — should you buy more, hold tight or consider cashing out while the momentum lasts?
The stock has comfortably outpaced the industry’s modest rise of 5%. Chewy’s unmatched scale and operational capabilities have also helped it outperform the Retail-Wholesale sector and the S&P 500 index, which posted respective gains of 5% and 0.8%.
Image Source: Zacks Investment Research
The company’s performance is fueled by strong demand for pet products and services, buoyed by a loyal customer base and a growing subscription model. While the numbers are promising, there are challenges on the horizon. Macroeconomic pressures and rising competition in the e-commerce space could influence the stock’s future growth trajectory.
Chewy stock closed at $30.24 during yesterday’s trading session, sitting 22.7% below its 52-week high of $39.10, reached on June 27, 2024. CHWY recently overtook the 20-day moving average, and this suggests a bullish trend. With that in mind, let’s dive into CHWY’s prospects and determine the best course of action for your portfolio.
Image Source: Zacks Investment Research
Chewy's Autoship and Expanding Services Propel Growth
Chewy has established itself as a formidable player in the online pet retail market, and recent performance metrics indicate that the company is well-positioned for long-term growth. This makes it an attractive prospect for investors seeking both stability and upside potential.
In the second quarter of 2024, Chewy reported decent financial results, with net sales reaching $2.86 billion, marking a 2.6% year-over-year increase. While this growth appears modest, it hit the high end of the company’s guidance, demonstrating the resilience of Chewy’s business model, even as the broader pet care market shows signs of normalization.
A primary factor behind this growth was the strength of Chewy’s Autoship program, which saw a 5.8% year-over-year increase in sales, contributing a significant 78.4% of total net sales. Autoship, which functions as a subscription-based service, has become a core component of Chewy’s revenue strategy. The program’s growth is driven by robust demand for non-discretionary categories like consumables and healthcare, which accounted for 85% of total sales during the quarter.
Chewy’s Net Sales Per Active Customer hit a new record at $565, reflecting a 6.2% increase compared to the prior year. This surge is fueled by the company’s premium product offerings, such as high-end pet food and healthcare products, along with strong repeat purchasing from its loyal customer base. At the close of the quarter, Chewy boasted about 20 million active customers.
Chewy’s expansion into veterinary services is another key driver of customer acquisition and retention. In the quarter under discussion, the company opened two more Vet Care clinics, bringing its total to six locations. These clinics not only enhance customer loyalty but also act as strategic entry points for new customers, embedding them into the Chewy ecosystem.
The company’s Sponsored Ads business has exceeded expectations and is on track to reach the lower end of the company’s long-term target of 1% to 3% of net sales by the end of 2024. This growth is supported by expanded inventory, increasing advertiser demand and improved customer relevancy, signaling another strong revenue stream for the future.
Chewy’s Financial Snapshot
Chewy’s strong financial position is validated by its free cash flow generation of $91 million in the second quarter. The company’s ability to consistently generate free cash flow allows it to fund strategic investments, such as expanding its Vet Care clinics and advancing its Sponsored Ads platform.
Chewy ended the quarter with $695 million in cash, cash equivalents and marketable securities while remaining debt-free, which provides it with significant financial flexibility. Chewy also returned capital to shareholders, repurchasing approximately 17.6 million shares for $500 million in a transaction separate from its existing $500 million share repurchase program. It bought back 1.3 million shares for $32.7 million under its authorized program.
Chewy Foresees Sales Growth and Margin Expansion
For the third quarter of fiscal 2024, Chewy anticipates net sales between $2.84 billion and $2.86 billion, which implies year-over-year growth of 3% to 4%. The company also reaffirmed its fiscal 2024 net sales forecast of $11.6 billion to $11.8 billion, suggesting a 4% to 6% increase from the last year.
The adjusted EBITDA margin is now projected between 4.5% and 4.7% for the current fiscal. This marks the second upward revision in the current fiscal year, driven by continued success in improving the product mix and leveraging operational efficiencies.
With capital expenditures projected at 1.5% to 2% of net sales and free cash flow conversion expected to remain above 80%, Chewy is well-positioned to maintain its financial stability and support its strategic growth initiatives.
Is CHWY Still Attractive After Recent Spike in Stock Price?
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 1.04, below the five-year median of 1.70 and the industry’s average of 1.72, 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 Zacks Consensus Estimates Faring for CHWY?
Reflecting the positive sentiment around Chewy, the Zacks Consensus Estimate for earnings per share has seen upward revisions. Over the past 30 days, analysts have increased their estimates for the current and next fiscal year by 34.1% to $1.14 and 19.4% to $1.23 per share, respectively. These estimates indicate expected year-over-year growth rates of 65.2% and 8.1%, respectively.
Image Source: Zacks Investment Research
Your Best Investment Play for CHWY Stock
Chewy has showcased strong performance, marked by substantial stock appreciation, robust financial metrics and strategic initiatives aimed at driving future growth in a competitive landscape that includes Petco Health and Wellness Company, Inc. (WOOF - Free Report) , Central Garden & Pet Company (CENT - Free Report) and BARK, Inc. (BARK - Free Report) . The company’s ability to expand high-margin businesses like Vet Care and Sponsored Ads, along with disciplined cost management, supports margin expansion and free cash flow generation.
With a solid balance sheet, consistent capital returns and an optimistic outlook for the remainder of 2024, Chewy presents a compelling investment play for shareholders looking for long-term growth. CHWY currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.