Recommendation: Buy
| Entry Date | Symbol | Recommendation | Entry Price (USD) | Target 1 (USD) | Target 2 (USD) | Holding Duration | Potential Upside* |
|---|---|---|---|---|---|---|---|
| 6 Mar, 25 | CHWY | Buy | USD 35.89 | USD 37.68 | USD 38.0 | 4 days | 5.9% |
*Potential Upside (%) indicates the expected percentage increase from the Entry Price to the Target 2 Price.
Data Powered by EOD Historical Data (“EODHD”).
Chewy, Inc., together with its subsidiaries, engages in the pure play e-commerce business in the United States. It provides pet food and treats, pet supplies and pet medications, and other pet-health products, as well as pet services for dogs, cats, fish, birds, small pets, horses, and reptiles through its retail websites and mobile applications. The company was founded in 2010 and is based in Plantation, Florida.
Strong Cash Flow Generation: Net cash provided by operating activities totaled $388.8 million for the first 39 weeks of FY24, a slight increase from $386.7 million in the prior year.
Revenue Growth & Profitability Improvement: Net sales increased by 4.8% year over year, reaching $2.88 billion in Q3 FY24 Adjusted EBITDA grew by $55.7 million to $138.2 million, with a margin expansion of 180 basis points to 4.8%.
Significant Stock Repurchases Impacting Equity: Chewy repurchased $875.2 million worth of common stock, leading to a sharp decline in stockholders’ equity from $510.2 million to $223.4 million (a 56.2% drop).
Decline in Cash and Cash Equivalents: Cash and cash equivalents decreased from $602.2 million at the beginning of the year to $506.6 million, reflecting a 15.9% decline.
Key investment risks for Chewy include margin pressures from rising operational and marketing costs, fluctuations in consumer demand impacting revenue growth, increased competition in the pet e-commerce space, and liquidity risks due to significant stock repurchases reducing stockholders’ equity.
| Entry Price | Support* | Target 1 | Target 2 |
|---|---|---|---|
| 35.89 | 32.0 | 37.68 | 38.0 |
Data Source: REFINITIV, Analysis: StockNextt
*Support can be considered as an indicative stop-loss, and if prices move below that level on closing basis individuals may evaluate exiting the position depending on their risk appetite, previous holdings, and other factors considered. The support and resistance levels may need to be re-evaluated within 4-6 weeks’ time frame depending on the stock price movements from the date of recommendation on the stock.
Chewy Reports Strong Fiscal Q3 2024 Performance
Chewy, Inc. delivered a solid performance in the third quarter of fiscal year 2024, with net sales reaching $2.88 billion, reflecting a 4.8% year-over-year increase. The company’s gross margin improved by 80 basis points to 29.3%, demonstrating its ability to drive operational efficiencies. Net income for the quarter stood at $3.9 million, inclusive of $80.4 million in share-based compensation expenses and related taxes. The net margin saw a notable improvement of 140 basis points year over year, reaching 0.1%. Additionally, basic and diluted earnings per share increased by $0.09, reaching $0.01 for the quarter.
Improvement in Profitability and Adjusted Financial Metrics
Chewy’s profitability metrics exhibited positive momentum, with Adjusted EBITDA rising by $55.7 million year over year to $138.2 million. The Adjusted EBITDA margin expanded by 180 basis points to 4.8%, showcasing the company’s focus on margin enhancement and cost management. Adjusted net income increased by $21.5 million to $84.9 million, translating into adjusted earnings per share of $0.20, a year-over-year increase of $0.05. The company’s CEO, Sumit Singh, attributed these strong results to Chewy’s robust business model, high-quality execution, and operational discipline.
Strengthened Financial Position and Liquidity
As of October 27, 2024, Chewy maintained a strong balance sheet with total assets amounting to $2.96 billion. The company’s cash and cash equivalents totaled $506.6 million, reflecting a decrease from $602.2 million at the beginning of the year. Marketable securities also declined from $531.8 million to $885, indicating a shift in asset allocation. Inventory levels increased to $858.6 million from $719.3 million, supporting the company’s growth initiatives. Meanwhile, total liabilities rose slightly to $2.73 billion from $2.68 billion, primarily driven by an increase in trade accounts payable.
Operational Efficiency and Revenue Growth
Chewy’s revenue growth was complemented by improvements in cost efficiency and operational execution. Gross profit for the quarter amounted to $843.9 million, an increase from $781.9 million in the prior year, driven by a favorable product mix and cost management initiatives. Total operating expenses rose slightly to $818.2 million, compared to $791.6 million in the previous year, reflecting continued investments in customer acquisition and operational scalability. The company reported an operating income of $25.6 million, reversing the prior year’s operating loss of $9.7 million.
Cash Flow and Capital Allocation
Chewy generated $388.8 million in net cash from operating activities in the first 39 weeks of fiscal 2024, reflecting a slight increase from $386.7 million in the previous year. Capital expenditures totaled $92.9 million, supporting the company’s infrastructure and technological advancements. Notably, Chewy repurchased $875.2 million in common stock, underscoring its commitment to shareholder value. Financing activities resulted in a net cash outflow of $929.7 million, primarily due to share repurchases and tax payments related to a parent reorganization transaction.
Positive Outlook and Future Growth Strategies
Chewy’s leadership remains optimistic about the company’s future prospects, emphasizing its ability to drive sustained growth and profitability. The sequential increase in active customers, coupled with continued margin expansion, reflects the resilience of its business model. Moving forward, the company aims to maintain its focus on customer engagement, operational efficiency, and financial discipline to further strengthen its market position and deliver long-term value to shareholders.
Considering recent key business, financial updates, current trading levels, outlook and key business risks, a ‘Buy’ recommendation has been given on Chewy, Inc (NYSE: CHWY) at the closing market price of USD 35.89, as on March 05, 2025.
Data Powered by EOD Historical Data (“EODHD”).
Sector: Consumer Cyclical Industry: Internet Retail
| Company | Change (USD) | Price (USD) | Trailing PE (x) | Forward PE (x) | Price Sales TTM (x) | Price to Book Value (x) | Enterprise Value to Revenue (x) | Enterprise Value to EBITDA (x) |
|---|---|---|---|---|---|---|---|---|
| CHWY Chewy Inc |
-2.46 7.31% | 31.21 | 33.58 | 58.48 | 1.12 | 57.70 | 1.13 | 41.74 |
| AMZN Amazon.com Inc |
-4.82 2.70% | 173.59 | 50.46 | 44.05 | 3.37 | 9.59 | 3.45 | 22.21 |
| BABAF Alibaba Group Holding Ltd |
-1.31 8.18% | 14.70 | 19.26 | 8.76 | 1.58 | 1.54 | 1.36 | 8.84 |
| PDD PDD Holdings Inc. |
-11.35 9.98% | 102.32 | 20.54 | 13.26 | 0.62 | 5.93 | 0.50 | 1.74 |
| BABA Alibaba Group Holding Ltd |
-15.73 12.16% | 113.60 | 10.59 | 7.29 | 0.21 | 1.28 | 0.14 | 0.91 |
Data Powered by EOD Historical Data (“EODHD”).
Related Risks: This report may be looked at from high-risk perspective and recommendations are provided are for a short duration. Recommendations provided in this report are solely based on technical parameters, and the fundamental performance of the stocks has not been considered in the decision-making process. Other factors which could impact the stock prices include market risks, regulatory risks, interest rates risks, currency risks, social and political instability risks etc.
Note 1: Past performance is not a reliable indicator of future performance.
Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is March 05,2025 at 06:45 AM PST. The reference data in this report has been partly sourced from REFINITIV.
Support: A level at which the stock prices tend to find support if they are falling, and a downtrend may take a pause backed by demand or buying interest. Support 1 refers to the nearby support level for the stock and if the price breaches the level, then Support 2 may act as the crucial support level for the stock.
Target: A level at which the stock prices tend to find resistance when they are rising, and an uptrend may take a pause due to profit booking or selling interest. Target 1 refers to the nearby resistance level for the stock and if the price surpasses the level, then Target 2 may act as the crucial resistance level for the stock.
Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.
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