To The Moon

🌟🌟🌟$Chewy, Inc.(CHWY)$ has joined the ranks of Meme stocks after Keith Gill aka Roaring Kitty disclosed a 6.6% stake in the pet supplies retailer founded by Gamestop CEO Ryan Cohen.

Chewy has dropped 6.6% on Monday to USD 25.44.  It had climbed as much as 18% in the premarket session after Keith Gill revealed that he owned 9 million shares of the company in a filing.  Last Thursday he posted an image of a dog on his account on X which led to the brief spike in Chewy shares.

Chewy brings together 2 prominent figures in the meme stock craze - Keith Gill and Ryan Cohen.  Ryan Cohen was Chewy's Founder and is now the CEO of $GameStop(GME)$ .  He was also an investor in Bed Bath & Beyond.  GameStop is also down 5.5% today.

Despite its  association with Ryan Cohen, Chewy has traded rather differently from Gamestop.

Chewy's share price has risen 63% over the past 3 months as it has reported stronger earnings and even announced a share buyback.  

Chewy reported adjusted earnings of 31 cents a share on revenue of USD 2.88 billion for the quarter ended April 28 2024 versus analysts expectations of 20 cents a share on revenue of USD 2.85 billion.

In the same period in 2023, Chewy posted earnings of 20 cents a share on revenue of USD 2.79 billion.

Chewy has also announced  share repurchase of up to USD 500 million. 

Chewy is a website that offers a variety of pet supplies including food, toys and medicine.  It is known for its Autoship offering which allows users to have items scheduled to automatically be delivered at their home for a discount. 

During the quarter,  Chewy said its Autoship customer sales increased by 6.4% from previous year to USD 2.23 billion.

Chewy was doing very well during the Covid pandemic due to a jump in pet adoption.  But these pet adoptions have slowed and rising prices have seen Chewy taking a hit. 

Some Wall Street Analysts are Bullish on Chewy.  Dylan Carden of William Blair has an Outperform rating on Chewy stock.  He said that Chewy is a Top Pick given its potential to generate free cash flow over the long term.

Steven Forbes of Guggenheim has raised Chewy 's Target price to USD 32 from USD 25.  According to Guggenheim, Chewy' s incremental share repurchase agreement combined with its management's commitment to delivering a 15% plus incremental adjusted EBITDA margin, supports the company's free cash flow outlook.  The analyst continues to see potential upside to current consensus expectations.

Wedbush analyst Seth Basham is even more bullish as he raised Chewy's target price to USD 35 from USD 28 and maintained an outperform rating on the shares.

With cash balances at  an estimated USD 600 million to USD 700 million and an improving cash flow trajectory, Wedbush still sees ample flexibility for Chewy to improve its sales. 

Chewy continues to gain market share and expand margins.  Chewy also said that net pet adoptions are increasing for the first time since 2022.

I believe that it is important to separate the buzz and hype from important financial analysis to make decision on Chewy's solid growth potential and business fundamentals rather than short lived social media trends. 

I like Chewy's value for money products which is key element for its current growth trajectory.  Chewy is more than just a meme stock but may be subject to greater volatility like other meme stocks. 

Is Chewy A Buy?  I like its growth trajectory and improving sales and cash flows.   In 2023, the US pet industry supplied an overall economic contribution of USD 303 billion, an increase of 16% from USD 260 billion in 2022.  Pet care is the Top Dog in the fast moving consumer goods category.  So Chewy has lots of exponential growth ahead. 

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