Chewy (NYSE: CHWY) stock price has had a tumultuous stay as a publicly traded company. Its stock surged from below $30 before the Covid-19 pandemic and reached a record high of $120 in 2021 as demand for e-commerce surged.
Chewy’s business is improving
Since then, like other pandemic winners, the stock went on a deep sell-off, bottoming at $14.72 in May. Recently, the stock has rebounded by over 75% after the company published encouraging financial results.
Chewy, the biggest company in the pet food industry, said that its quarterly revenue rose by 3.1% to $2.8 billion. Its gross margin rose slightly to 29.7% while its net income rose to over $66.9 million.
These numbers are a continuation of what has been happening in the past few years. Its annual revenue rose from $8.9 billion in 2021 followed by $10.1 billion in 2022 and $11.1 billion in 2023. Analysts believe that its slow growth will continue, hitting $11.76 billion and $12.37 billion in 2024 and 2025, respectively.
Chewy’s other metrics have grown in the past few years. Its net sales per customer has risen to $555 in 2023 from $434 in 2021. This increase, however, was because the company’s revenue rose as active customers dropped slightly. Chewy’s margins have done well. The gross profit margin rose from 28.4% in Q1’23 to 29.7%.
Most importantly, Chewy has turned into a profitable company. Its net profit in the past twelve months came in at over $83.6 million in the trailing twelve months (TTM). It moved from $39.6 million in 2023 from the prior year’s $49.9 million.
The biggest challenge for Chewy, however, is that the company trades at a pricey valuation. It has a forward PE ratio of 28.8, higher than the sector median of 14.50 while its forward EV to EBITDA ratio of 18.7 is higher than the median of 9.70.
A simple way to compare Chewy is to look at other e-commerce companies. For example, Etsy has a forward P/E ratio of 12.4% and a forward EV to EBITDA of 10.75 even though it is growing at a faster pace than Chewy.
The same is true with the S&P 500 index, which has a forward PE ratio of 21 while its earnings are growing by 5.4%. Therefore, Chewy will need to demonstrate strong revenue and profitable growth to justify this valuation.
Chewy stock price analysis
The daily chart shows that the CHWY share price bottomed at $14.72, where it formed a double bottom pattern. It has now risen above the neckline of this pattern at $25.3, its highest point in December.
The stock has jumped above the 23.6% Fibonacci Retracement point. It has also jumped above the 200-day Exponential Moving Average (EMA) and is about to form a golden cross pattern. Therefore, from a technical perspective, the stock will likely continue rising as buyers target the 50% retracement point at $33.73, which is about 30% above the current level. This is in line with a recent Jim Cramer’s forecast of the stock.
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