Buy Soaring Chewy Stock Before Q3 Earnings as E-Commerce Play?

Benjamin Rains
·4-min read

Chewy CHWY is an e-commerce pet store that has expanded into telehealth and bolstered its pet medication offerings. The company’s shares have climbed over 25% in the last month and they hit new records on December 1. This could mean that investors are high on the stock heading into the release of its third quarter FY20 financial results on Tuesday, December 8.

Pet-Commerce

Chewy started in 2011 and went public in June 2019. The e-commerce-focused pet store, which offers relatively speedy delivery, sells pet food, supplies, treats, medications, and more for a wide variety of animals. CHWY has found a solid niche within a crowded digital commerce world dominated by giants such as Amazon AMZN, Target TGT, Walmart WMT, and others.

CHWY has also expanded its reach more recently into new areas that could prove successful. The company announced at the end of October its plans to roll out its new telehealth service, dubbed “Connect With a Vet,” nationwide. Chewy said at the time that it was available in over 35 states. It is worth noting that the service is currently available “exclusively and free of charge” to its vital Autoship customers.

Chewy’s telehealth offering could prove to be a hit during the pandemic and beyond, in a world where Teladoc TDOC and others are gaining steam. Along the same lines, the firm announced on November 12 that it was expanding its pharmacy unit to “offer compounded medications that are customized to the specific needs of pets.”

 

 

 

 

 

 

 

 

 

 

 

 

What Else?

Chewy’s offerings have are clearly compelling in our modern retail world. The firm closed Q2 with 16.6 million active customers, up 38% from the year-ago period. Meanwhile, its revenue surged 47% in both the first and second quarters. And investors must continue to keep an eye on CHWY’s Autoship business, which accounted for roughly 70% of total revenue.

Looking ahead, Zacks estimates call for CHWY’s Q3 revenue to climb 40% to help trim its adjusted loss from -$0.20 in the prior-year quarter to -$0.15 a share. CHWY’s full-year fiscal 2020 revenue is projected to jump by 41% to come in at $6.84 billion, with FY21 projected to climb 23% higher to reach $8.43 billion. These would both come on top of FY19’s 37% revenue growth.

Chewy is projected to extend its loss this year from -$0.29 to -$0.40 a share, as it spends on its own growth. It is then expected to shrink its bottom line loss to -$0.12 per share in FY21. Investors should note that CHWY’s positive earnings revisions help it land a Zacks Rank #2 (Buy) right now. The stock also sports an “A” grade for Growth and CHWY topped our Q2 EPS estimate by roughly 50%.

Moving on, the nearby chart highlights CHWY’s strong run over the past 12 months, with the stock up 220%. This helps it edged out fellow stay-at-home standout Peloton PTON. CHWY has also climbed over 25% in the last month, following its two significant announcements, and it hit new highs of over $78 per share on Tuesday.

CHWY trades at 3.8X forward 12-months sales. This marks a huge discount to fellow niche e-commerce firm Etsy’s ETSY 11.5X, Peloton’s 7.8X, and comes right in line with Amazon.

Bottom Line

Playing a stock for near-term gains around earnings is risky, especially given Chewy’s recent run. That said, longer-term investors might want to take a chance on the e-commerce pet store as a continued coronavirus play and a bet on the long-term expansion of digital commerce and delivery, which are the future and still have miles of room to grow.

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