3 reasons why this battered stock is a great buy


Sonline pet retailer hare price soft (NYSE: CHWY) plunged after the company’s results for the third quarter of fiscal 2021 showed a larger-than-expected loss thanks to multiple headwinds such as supply chain issues, labor shortages implementation and cost inflation.

The stock’s price fell 8% after Chewy’s earnings release on December 9, meaning it has now lost almost 39% of its value in 2021.

CHWY given by YCharts

However, Chewy’s sharp drop in 2021 is an opportunity for savvy investors to add a top-tier company to their portfolio as it takes advantage of the rapidly growing pet products and supplies space. Let’s take a look at three reasons why you should consider buying Chewy stocks right now.

1. Chewy successfully taps into a rapidly growing market

Chewy’s third-quarter revenue jumped 24% year-over-year to $ 2.21 billion, driven by an increase in customer base as well as increased customer spending. The company ended the quarter with 20.4 million active customers, an increase of 14.7% over the prior year period. Chewy’s gross margin also increased 90 basis points year-over-year during the quarter.

The company’s net loss, however, was flat year-over-year at $ 0.08 per share. Wall Street expected Chewy to post a net loss of $ 0.04 per share, but “mounting inflationary pressures, supply chain disruptions and chronic labor shortages” weighed on his results. As a result, Chewy’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) was almost stable year over year at $ 6 million.

A hand holds a smartphone displaying a stock chart.

Image source: Getty Images.

Investors have hit the panic button at the sight of Chewy’s poor performance, but they miss the big picture. More and more customers are buying pet products online than ever before. Market research firm Packaged Facts reported in May of this year that 30% of sales of pet products are now done online. This is a significant increase from just 8% in 2015. The company estimates that e-commerce will account for 53% of the global pet products and supplies market by 2025, resulting in a $ 50 billion in revenue opportunity for Chewy.

Chewy’s impressive growth in customer base and revenue indicates that she is doing well in capturing the end-market opportunity. This is not surprising, as the company has a 41% share of the online pet retail market, meaning it can maintain its impressive revenue growth as more and more more customers are buying pet products online.

2. Portfolio share gains will drive long-term growth

One of the main lessons from Chewy’s latest quarterly report was the acceleration in the company’s net sales per active customer (NSPAC), which rose 15.4% year-on-year to $ 419 in the quarter. A higher NSPAC means Chewy’s customers are spending more money on its offerings, and the good part is that this metric has started to increase at a faster rate over the past two quarters.

Metric

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Q3 2021

Net sales per active customer

$ 357

$ 356

$ 363

$ 372

$ 388

$ 404

$ 419

Year-over-year growth

6.6%

3.2%

2.8%

3.3%

8.7%

13.5%

15.4%

Data source: Chewy Quarterly Reports.

This acceleration of Chewy’s NSPAC is not surprising as its clients tend to spend more money on the e-commerce platform the longer they use it. In the second year, Chewy points out that customers spend $ 400 on her website, which goes up to $ 700 in the fifth year and $ 900 in the ninth year. Additionally, new customers coming into Chewy’s fold spend more money than the customer cohorts he added last year and the year before.

Chewy said in its letter to shareholders that the average order value for Chewy’s new customers was 6% higher than the Q3 2020 cohort and 13% higher than the Q3 2019 cohort. Now As Chewy has built a solid base of over 20 million customers and captures a greater portion of their portfolios, the company should be able to maintain its impressive revenue growth as its customer base evolves.

3. The appraisal is worth buying

All of this indicates that Chewy’s stock could eventually regain its mojo in the long run. The company’s strong share in a rapidly growing market and its ability to extract more money from its customers should translate into robust growth in revenue and bottom line in the long run, which is why it may be wise to buy this beaten product. out of stock at the moment.

Chewy is trading at just 2.9 times sales. This is less than S&P 500‘s price / sale ratio from 3.2. Interestingly, the current sales growth rate of the S&P 500 is 6.58%, which is far lower than the 25% growth Chewy expects to see in the fiscal year in 2010. Classes. Moreover, analysts expect Chewy to see sales growth of over 20% even in the next fiscal year, which strengthens the bullish argument and makes the stock a growth stocks buy now for long term gains.

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Dur Chauhan has no position in any of the stocks mentioned. The Motley Fool owns and recommends Chewy, Inc. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


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