Chewy, Inc. (CHWY) engages in the pure-play e-commerce business in the United States. The company provides pet food and treats, pet supplies and medications, and other pet-health products, as well as pet services for dogs, cats, fish, birds, small pets, horses, and reptiles through its retail website, as well as its mobile applications. It offers approximately 100,000 products from 3,000 partner brands.

CHWY beat the Wall Street estimates for its revenue and earnings in the last reported quarter. The company reported earnings of $0.04 per share, while analysts had expected a loss of $0.14 per share. It also beat its revenue estimates by $15.63 million or 0.7%. Despite the challenging macroeconomic environment, the company was able to cash in on the strong consumer demand on the back of rising pet adoptions during the pandemic.

The company’s consumables and healthcare categories drove its revenue and earnings growth in the last quarter. However, analysts expect its EPS to remain negative in fiscal 2023 and 2024 as pet adoptions have fallen in the post-pandemic era, and the multi-decade high inflation is expected to hamper consumer spending on pet products and supplies.

CHWY’s stock has declined 54.1% in price year-to-date and 63.9% over the past year to close the last trading session at $27.05. It is currently trading 72.3% below its 52-week high of $97.74, which it hit on August 13, 2021.

Here’s what could influence the performance of CHWY in the upcoming months:

Disappointing Financials

CHWY’s gross margin declined 0.1% year-over-year to 27.5% for the first quarter ended May 1, 2022. Its adjusted net income decreased 28.1% year-over-year to $45.66 million. Also, its adjusted EBITDA declined 21.7% year-over-year to $60.51 million.

Mixed Analyst Estimates

Analysts expect CHWY’s EPS for fiscal 2023 and 2024 to remain negative. However, its revenues for fiscal 2023 and 2024 are expected to increase 15.6% and 15%, respectively. It failed to surpass Street EPS estimates in three of the trailing four quarters.

Stretched Valuation

In terms of forward EV/S, CHWY’s 1.09x is 5.1% higher than the 1.04x industry average. Likewise, its 1.11x forward P/S is 30.8% higher than the 0.85x industry average. And the stock’s 550.47x forward P/B is significantly higher than the 2.27x industry average.

Mixed Profitability

In terms of trailing-12-month gross profit margin, CHWY’s 26.69% is 26.3% lower than the 36.25% industry average. Likewise, its 4.49% trailing-12-month asset turnover ratio is 336.1% higher than the industry average of 1.03%. Furthermore, the stock’s 0.21% trailing-12-month levered FCF margin is 94% lower than the industry average of 3.45%.

POWR Ratings Reflect Uncertainty

CHWY has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. CHWY has a C grade for Sentiment, in sync with its mixed analyst estimates.

The stock has a D grade for Growth, consistent with its disappointing EPS growth prospects.

CHWY is ranked #47 out of 62 stocks in the Consumer Goods industry. Click here to access CHWY’s value, Momentum, Stability, and quality ratings.

Bottom Line

CHWY is currently trading below its 50-day and 200-day moving averages of $31.56 and $51.81, respectively, indicating a downtrend. Despite delivering positive revenue and EPS surprise in its last reported quarter, CHWY EPS is expected to remain negative in fiscal 2023 and 2024 as inflation is at a multi-decade high and discretionary consumer spending on pet products and supplies are likely to decline. So, it could be wise to wait for a better entry point in the stock.

How Does Chewy (CHWY) Stack Up Against its Peers?

While CHWY has an overall POWR Rating of C, you might want to consider investing in the following Consumer Goods stocks with an A (Strong Buy) and B (Buy) rating: Mannatech, Incorporated (MTEX), Société BIC SA (BICEY), and Ennis, Inc. (EBF).

CHWY shares were trading at $28.67 per share on Wednesday morning, up $1.62 (+5.99%). Year-to-date, CHWY has declined -51.38%, versus a -20.23% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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