We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Is Chewy Stock a Buy, Sell or Hold at a P/E Multiple of 23.6X?
Read MoreHide Full Article
Chewy Inc. (CHWY - Free Report) is a prominent player in the pet care industry, leveraging its e-commerce platform to cater to a growing base of pet owners. CHWY is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 23.6x, which positions it at a discount compared to the industry’s average of 25.47x. The valuation does suggest that Chewy is undervalued, presenting a potential buying opportunity.
CHWY Looks Attractive from a Valuation Standpoint
Image Source: Zacks Investment Research
However, CHWY stock's 12.9% drop in the past month may have contributed to its discounted trading status, raising concerns about the company's near-term performance. The recent drop in Chewy’s stock price could be attributed to various factors, including competitive pressures and macroeconomic conditions that may impact consumer spending in the pet care sector.
CHWY Stock Past One Month Performance
Image Source: Zacks Investment Research
Therefore, while Chewy’s lower P/E ratio signals potential value, a thorough analysis is essential for making an informed investment decision on whether to buy, hold, or sell the stock. It is crucial to examine Chewy's fundamental drivers and strategic initiatives. If the company can effectively navigate challenges and demonstrate a clear growth path, the current discounted valuation may present a compelling entry point for long-term investors.
Chewy stock closed at $28.45 during yesterday’s trading session, sitting 27.2% below its 52-week high of $39.10, reached on June 27, 2024. However, CHWY is trading above its 50-day moving average, suggesting a bullish trend. With that in mind, let’s dive into CHWY’s prospects and determine the best course of action for your portfolio.
CHWY Trades Above 50-Day Moving Average
Image Source: Zacks Investment Research
Decoding Chewy's Tailwinds
Chewy has established itself as a formidable player in the online pet retail market. With its commitment to customer satisfaction and innovative solutions, the company is poised for sustained growth. The company's ability to adapt to changing market dynamics while prioritizing customer loyalty makes it an appealing investment for those looking to tap into the burgeoning pet care market.
A prime example of Chewy's focus on enhancing the customer experience is its innovative subscription service, Autoship. By enabling pet owners to schedule regular deliveries of their essentials, Chewy has cultivated a loyal customer base that values convenience and reliability. This feature not only simplifies the purchasing process but also helps the company maintain a steady revenue stream, enabling it to tailor offerings based on preferences and needs. The Autoship program accounted for 78% of total net sales in the last reported quarter.
Chewy has expanded its product offerings beyond traditional pet supplies to include a diverse range of pet care items, such as health products, supplements, and prescription medications. This strategic move positions Chewy as a one-stop destination for pet owners. The company has also made significant strides in enhancing its logistics and supply chain capabilities. By optimizing fulfillment centers and streamlining delivery processes, the company ensures that products reach customers quickly and efficiently.
Chewy's strategic expansion into veterinary care has shown promising results. The company opened two additional Chewy Vet Care clinics, bringing the total to six locations at the end of the second quarter of 2024. These clinics not only enhance customer loyalty but also act as strategic entry points for new customers, embedding them into the Chewy ecosystem. This initiative has a positive impact on Net Sales Per Active Customer, which reached a new record of $565 in the second quarter, reflecting year-over-year growth of 6.2%.
Moreover, Chewy's Sponsored Ads business is ramping up nicely and is on track to reach the low end of its long-term target of 1% to 3% of net sales by the end of 2024. The growth in this area is driven by an expanding inventory, increased advertiser demand and improved customer engagement metrics. This revenue stream not only diversifies Chewy's income but also capitalizes on its large customer base.
Chewy has invested in improving its mobile app experience, resulting in a 13% year-over-year increase in unique customers placing orders through the app and a 15% increase in overall mobile app orders. The app’s redesign has enhanced user experience, leading to higher order volumes and improved customer retention.
A Sneak Peek into Chewy’s Financial
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.
How Do Consensus Estimates Measure Up for CHWY?
Wall Street analysts have expressed confidence in Chewy stock by raising their earnings per share estimates. Over the past 60 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. The estimates for 2024 and 2025 indicate expected year-over-year growth rates of 65.2% and 8.1%, respectively.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
Should You Buy, Sell or Hold CHWY Stock?
Chewy continues to demonstrate strong execution across its strategic priorities, delivering solid financial performance, margin expansion, and customer engagement through innovative initiatives 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) . With a robust balance sheet and a clear path to sustained growth, Chewy remains well-positioned to capitalize on evolving consumer trends in the pet industry, making it a compelling investment opportunity for shareholders. CHWY currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Zacks' 7 Best Strong Buy Stocks (New Research Report)
Valued at $99, click below to receive our just-released report predicting the 7 stocks that will soar highest in the coming month.
Image: Bigstock
Is Chewy Stock a Buy, Sell or Hold at a P/E Multiple of 23.6X?
Chewy Inc. (CHWY - Free Report) is a prominent player in the pet care industry, leveraging its e-commerce platform to cater to a growing base of pet owners. CHWY is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 23.6x, which positions it at a discount compared to the industry’s average of 25.47x. The valuation does suggest that Chewy is undervalued, presenting a potential buying opportunity.
CHWY Looks Attractive from a Valuation Standpoint
Image Source: Zacks Investment Research
However, CHWY stock's 12.9% drop in the past month may have contributed to its discounted trading status, raising concerns about the company's near-term performance. The recent drop in Chewy’s stock price could be attributed to various factors, including competitive pressures and macroeconomic conditions that may impact consumer spending in the pet care sector.
CHWY Stock Past One Month Performance
Image Source: Zacks Investment Research
Therefore, while Chewy’s lower P/E ratio signals potential value, a thorough analysis is essential for making an informed investment decision on whether to buy, hold, or sell the stock. It is crucial to examine Chewy's fundamental drivers and strategic initiatives. If the company can effectively navigate challenges and demonstrate a clear growth path, the current discounted valuation may present a compelling entry point for long-term investors.
Chewy stock closed at $28.45 during yesterday’s trading session, sitting 27.2% below its 52-week high of $39.10, reached on June 27, 2024. However, CHWY is trading above its 50-day moving average, suggesting a bullish trend. With that in mind, let’s dive into CHWY’s prospects and determine the best course of action for your portfolio.
CHWY Trades Above 50-Day Moving Average
Image Source: Zacks Investment Research
Decoding Chewy's Tailwinds
Chewy has established itself as a formidable player in the online pet retail market. With its commitment to customer satisfaction and innovative solutions, the company is poised for sustained growth. The company's ability to adapt to changing market dynamics while prioritizing customer loyalty makes it an appealing investment for those looking to tap into the burgeoning pet care market.
A prime example of Chewy's focus on enhancing the customer experience is its innovative subscription service, Autoship. By enabling pet owners to schedule regular deliveries of their essentials, Chewy has cultivated a loyal customer base that values convenience and reliability. This feature not only simplifies the purchasing process but also helps the company maintain a steady revenue stream, enabling it to tailor offerings based on preferences and needs. The Autoship program accounted for 78% of total net sales in the last reported quarter.
Chewy has expanded its product offerings beyond traditional pet supplies to include a diverse range of pet care items, such as health products, supplements, and prescription medications. This strategic move positions Chewy as a one-stop destination for pet owners. The company has also made significant strides in enhancing its logistics and supply chain capabilities. By optimizing fulfillment centers and streamlining delivery processes, the company ensures that products reach customers quickly and efficiently.
Chewy's strategic expansion into veterinary care has shown promising results. The company opened two additional Chewy Vet Care clinics, bringing the total to six locations at the end of the second quarter of 2024. These clinics not only enhance customer loyalty but also act as strategic entry points for new customers, embedding them into the Chewy ecosystem. This initiative has a positive impact on Net Sales Per Active Customer, which reached a new record of $565 in the second quarter, reflecting year-over-year growth of 6.2%.
Moreover, Chewy's Sponsored Ads business is ramping up nicely and is on track to reach the low end of its long-term target of 1% to 3% of net sales by the end of 2024. The growth in this area is driven by an expanding inventory, increased advertiser demand and improved customer engagement metrics. This revenue stream not only diversifies Chewy's income but also capitalizes on its large customer base.
Chewy has invested in improving its mobile app experience, resulting in a 13% year-over-year increase in unique customers placing orders through the app and a 15% increase in overall mobile app orders. The app’s redesign has enhanced user experience, leading to higher order volumes and improved customer retention.
A Sneak Peek into Chewy’s Financial
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.
How Do Consensus Estimates Measure Up for CHWY?
Wall Street analysts have expressed confidence in Chewy stock by raising their earnings per share estimates. Over the past 60 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. The estimates for 2024 and 2025 indicate expected year-over-year growth rates of 65.2% and 8.1%, respectively.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
Image Source: Zacks Investment Research
Should You Buy, Sell or Hold CHWY Stock?
Chewy continues to demonstrate strong execution across its strategic priorities, delivering solid financial performance, margin expansion, and customer engagement through innovative initiatives 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) . With a robust balance sheet and a clear path to sustained growth, Chewy remains well-positioned to capitalize on evolving consumer trends in the pet industry, making it a compelling investment opportunity for shareholders. CHWY currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.