, Chewy Stock Down 37% From Highs, Time To Buy?, The Nzuchi News Forbes

Chewy Stock Down 37% From Highs, Time To Buy?

Chewy’s stock (NYSE: CHWY), an online retailer of pet products in the U.S, plunged by almost 37% from its February 2021 high of $119 and remains down by about 15% year-to-date – trading at $75 per share currently. It is worth mentioning that the retailer saw an exceptional boost from increased pet adoption as the pandemic deepened in 2020. But with Covid-19 cases falling and vaccination rates picking up in the U.S., investors are moving out of fast-growing stocks such as Chewy, to cyclical and value stocks. So does Chewy stock still look attractive at current levels? We certainly think so.

Chewy’s stock has climbed up more than 2x from $35 levels since its market debut in June 2019. We believe that at four times expected 2021 sales and fifty times adjusted EBITDA, CHWY looks like a better opportunity now for investors to buy and hold onto this high-growth company. Chewy added a net 5.7 million new customers in 2020 (i.e. 42.7% year-over-year increase) and finished out the year with 19.2 million in total. Going forward, we expect these customers to likely stay with the retailer even as the effects of the pandemic start to ease – as the company’s business model allows it to automate the shipping of basics like food to households with pets. In addition, the company is still forecasting at least a 25% increase in sales in 2021 as it prioritizes adding new customers.

Chewy’s stock has largely outperformed the broader markets between fiscal 2019 and now. The company’s stock is 184% higher since the end of fiscal 2019, compared to a 30% growth in the S&P. Our dashboard, What Factors Drove 184% Change in Chewy’s Stock Between Fiscal 2019 and Now? provides the key numbers behind our thinking, and we explain more below.

Chewy’s stock increased a whopping 284% from around $27 at the end of fiscal 2019 to around $102 at the end of fiscal 2020. The company saw its revenues rising 47% between 2019-2020, and the company’s stock also grew during this period due to the market assigning a higher P/S multiple. This value grew from 2.2x at the end of fiscal 2019 to 5.8x in fiscal 2020. While the company’s P/S is about 4.3x now, we believe there is still an upside possibility given the growth opportunities.


How Is Coronavirus Impacting Chewy’s Stock?

, Chewy Stock Down 37% From Highs, Time To Buy?, The Nzuchi News Forbes

The online pet products retailer finished fiscal 2020 with revenue up 47% y-o-y to $7.15 billion as pet parents switched to online shopping amid the pandemic. The big jump in sales helped Chewy swing from an adjusted EBITDA loss of $81 million in 2019 to an adjusted EBITDA profit of $85 million in 2020. Even after the early phases of reopening of the economy – Chewy reported a 12% y-o-y increase in the average spends per new customer in the fourth quarter.

Chewy sells food and supplies for a variety of pets – dogs, cats, fish, birds, small pets, horses, and reptiles. Customers can even sign up for the company’s Autoship service and benefit from a small discount and recurrent deliveries. These Autoship sales make up nearly 70% of Chewy’s total net sales. The company is also trying to get into new pet industry categories like personalized products, e-gift cards, and a pet telehealth offering – where pet owners can schedule a visit with a veterinarian over a phone or video conference.

Looking ahead, an increasingly dominant role in the online pet retail space and the expansion of the market overall should fuel this stock.

E-commerce is eating into retail sales, but this might be an investment opportunity. See our theme on E-commerce Stocks for a diverse list of companies that stand to benefit from the big shift.

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