Chewy's stock is just off a 52-week low despite an upbeat forecast. Is now the time to buy?
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Chewyâs (NYSE:CHWY) stock has been pummeled in recent months along with the rest of the e-commerce sector. The slide has come despite the fact that the online pet supplies retailer announced better-than-expected Q1 earnings and forecasted strong growth.
Is Chewy now a buy?
From Pandemic Demand to Headwinds from Inflation and Supply Chains
Like many online retailers, shares of pet supplies vendor Chewy were driven skyward during the pandemic as social distancing restrictions forced consumers to rely heavily on e-commerce for everything from food to furniture. Chewyâs prospects were also brightened by a spike in pet ownership during the lockdowns.
But the red-hot growth seen by e-tailers during the height of the pandemic has cooled in recent months as the sector struggles with chronic supply chain problems, inflationary pressures and renewed competition from in-person shopping. The result has been a massive sell-off of shares for even coveted names like Amazon (AMZN).
Since the beginning of 2022, Chewy shares have tumbled 53%, reaching a 52-week low of $22.22 on May 24. This represented a 77% drop from the stock's high of $97.74 on Aug. 13, 2021.
In comparison, e-tail leader Amazon (AMZN) shares have tumbled 40% in 2022, while Etsy (ETSY) has fallen 66%, Wayfair (W) has retreated 76% and Shopify (SHOP) has plunged 78%.
Chewyâs pet-focused rivals have also had a rough ride this year. Petco (WOOF), which operates brick and mortar stores in addition to an e-commerce platform, has seen its shares slide 23% since the start of the year. Shares of Bark (BARK), an online retailer of dog-centric merchandise and services, have tumbled 67%.
Also of note, around 23% of Chewyâs shares were held by short interests as of June 14, adding to the stockâs volatility.
Is CHWY a Buy?
Chewy shares trended downward during the month of May, especially in the days preceding the release of the company's Q1 earnings report on June 1. Adding to investor apprehension about the report were analyst warnings that inflation and supply chain problems would likely weigh on revenue and earnings.
But Chewy managed to pleasantly surprise the Street with a Q1 report that beat estimates on both the top and bottom lines. The company also maintained its 2022 forecast, which includes year-over-year net sales growth of 15% to 17%.
Investors embraced report, driving up shares 24% during the following session.
Analysts were also largely upbeat about the report, with some noting that the company was preparing to expand its product offerings by getting into the pet insurance business.
"We remain impressed by CHWY's strong execution and continue to view the opportunity as compelling, and expanding, with the launch of CHWY's CarePlus insurance and wellness plans planned for later in 2Q," wrote Wells Fargo analysts in a note following the report.
Baird analysts, who had an outperform rating on the stock, said in their June 1 note that while the pet insurance initiative was âunlikely to be a top-line needle-mover,â it represented a "high-margin, TAM-expanding revenue stream that should help drive deeper loyalty and engagement.â
William Blair analysts, who also had an outperform rating on Chewy, said in their June 1 note that they believed the company âdeserves credit for doing a better job than most navigating a difficult cost environmentâ and that it remained âone of the more competitively advantaged models to take share as the pet industry increasingly moves online.â
Wall Street analysts, on average, rate Chewy a Buy. Of the 24 analysts tracked by SA, 13 rated the stock a Buy or Strong Buy, 10 have it as a Hold and one has issued a Strong Sell recommendation. SA authors, meanwhile, rate the stock a Hold.
From a quantitative standpoint, however, the picture gets more pessimistic. Seeking Alpha's Quant Ratings view the stock as a Sell. While the company earned an A+ for growth, it also received a C- for revisions, D for momentum and profitability, and a D- for valuation.
For a bullish take on Chewy, see Seeking Alpha contributor Gary Alexanderâs âChewy Stock: The Rebound is Hereâ. For a bearish view, read SA contributor Jacob Cordesâ âChewy: Even with Explosive Growth, the Price is Unpalatableâ.