Upon its initial public offering, online pet-product retailer Chewy (NYSE:CHWY) might have reminded more seasoned investors of the now-defunct company Pets.com. The stock representing Pets.com was delisted after collapsing in the wake of the dot-com bust of the early 2000’s. Will the same fate befall Chewy stock and its shareholders?
Not likely. Pets.com stock fell off the face of the earth nine months after its IPO because the company’s financials were dismal. In contrast, the data indicates that Chewy has strong sales numbers and the company’s pool of customers is expanding quickly. And, interestingly enough, the spread of the novel coronavirus actually caused a pickup in Chewy’s business.
So, what do the experts have to say about Chewy stock today? Is the stock trading at a good price, and is Chewy likely to continue to impress Wall Street going forward? Let’s examine the facts and decide for ourselves whether Chewy’s more than just a dog-and-pony show.
A Closer Look at Chewy Stock
A pair of big pushes to the upside have made Chewy a surprising winner amid the coronavirus crisis. The first push occurred from the middle of March, when the shares bottomed out at the $23 level. That surge lasted until late April, by which time the stock had doubled, reaching the $46 price point.
After that, from late May to early June, the Chewy stock price quickly swung upwards to the $50 level. That’s a noteworthy achievement considering the shares languished for months below $35.
Clearly, the bulls have wrested control from the bears and they’re unafraid to assert their dominance. At this point, it’s only a matter of whether they can keep the momentum going. But until there’s a compelling reason to believe otherwise, the answer to that question is most likely yes.
Pandemic Pantry Stocking Benefits Chewy
A number of new shifts, or at least accelerations of already existing shifts, have taken place during the coronavirus crisis. First of all, the pivot towards e-commerce was already under way prior to the outbreak. However, the stay-at-home phenomenon has given a boost to the online-retail sector generally.
It makes sense that Chewy would benefit from the stay-at-home trend. But there’s another driver of increasing sales for Chewy. It’s the pantry-stocking trend that commenced when the pandemic struck fear and panic into the populace.
Chewy CEO, Sumit Singh, provides insight into how this phenomenon contributed to an outstanding first quarter for the company:
“After the COVID-19 outbreak, our existing customers started creating bigger baskets. These baskets had a higher mix of consumables in them. We believe these larger baskets with a higher mix of consumables were evidence of pandemic-related pantry stocking, and we estimate this benefited first quarter net sales by approximately $70 million.”
Can the Growth Continue?
So, we’ve established that the hoarding of pet food and supplies provided a major boost to Chewy’s first-quarter bottom line. We can also observe that Chewy’s first-quarter revenues came to $1.62 billion, beating the analyst-consensus estimate of $1.53 billion and representing a whopping 46% increase.
But now investors might question whether the aforementioned pantry-stocking trend will persist. That remains to be seen, but Chewy’s guidance suggests a highly optimistic outlook. Specifically, the company models second-quarter revenues of $1.62 billion to $1.64 billion. That would signify revenue growth in the range of 40% to 42%.
And for the full year, Chewy projects sales between $6.55 billion and $6.65 billion. That might have been unimaginable prior to the pandemic, but this “new normal” has already given rise to some abnormal returns.
The Bottom Line
The stunning momentum in Chewy stock can, at least in part, be explained by recent pantry-stocking activity. This trend may or may not continue, but for the time being at least, the dogs and cats are well fed and the bulls are happy.
As of this writing, David Moadel did not hold a position in any of the aforementioned securities.
