Chewy’s stock price has delivered strong returns in the past seven months, jumping from a low of $14.7 to $36. This 145% jump was better than most companies in the United States, including the benchmark indices like the S&P 500 and Nasdaq 100. So, is Chewy still a good stock to buy this year?
Chewy is doing modestly well
Chewy is one of the biggest players in the pet industry, where it sells treats, food, toys, and other items online.
The pet industry is a big one in the United States as millions of people own pets like cats, dogs, and fish. Over 65.1 million households own a dog, while 86.9 million own cats. These numbers are expected to keep growing, creating a huge addressable market.
The pet food and accessories is also highly fragmented, with many families stocking their supplies from popular brands like Walmart, Target, and even Amazon.
Chewy operates as a specialty company that sells its products online. Over time, its platform has served millions of users, and the management believes it has more room to grow. Chewy’s annual revenue has grown, thanks to its strong demand and higher prices.
The third-quarter results showed that Chewy’s business added 160k customers, and net sales per active customer rose to $567, an increase from the previous $54.
Its total sales rose slightly from $2.7 billion to $2.87 billion, a sign that the era of double-digit growth rate is almost over. The autoship sales rose to $2.3 billion from $2.11 billion.
Most importantly, Chewy’s business is growing its margins as the management focuses on profitability. Its goss margin has risen from 26.6% in FY’21 to 29.2% in the trailing twelve months (TTM).
Chewy has also continued to grow its cash flow, an important profitability figure. Its full-year free cash flow has risen from $9 million to over $363 million.
The company also hopes to become a key player in the pet health industry, which analysts believe will be a key catalyst. Also, the company’s advertising business is growing, offering higher margins. Chewy has also invested in the private-label business that it hopes will keep doing well.
Analysts see little upside for Chewy shares
Wall Street analysts are mildly upbeat about the Chewy stock price. The average estimate by analysts is $36.5, slightly higher than the current $36.5.
Meanwhile, the average estimate for 2024 annual revenue is $11.8 billion, up 5.88% from last year. It will then make $12.41 billion this year, a 5% increase from last year.
Chewy’s earnings per share is expected to reach $0.20 in the fourth quarter, bringing its annual figure to $1.27.
Chewy stock price analysis
The weekly chart shows that the Chewy share price bottomed at $14.7 in 2024. This bottoming happened after the stock formed a falling wedge chart pattern, a popular bullish sign in the market. This rebound was in line with my last CHWY stock forecast.
The stock is approaching the 23.6% Fibonacci Retracement point. It has also moved above the 50-week moving average and hit the 200-week moving average.
However, the stock has formed a rising wedge chart pattern, a popular reversal sign. A wedge is formed with two rising and converging trendlines.
Therefore, the stock will likely have a bearish breakout in the next few weeks as long as it remains below the 200-week moving average. If this happens, the next point to watch will be at $30.
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