Here’s why Chewy Stock may be worth buying before you make any money


soft (NYSE: CHWY) is set to release its third quarter fiscal 2021 results after the market closed on Thursday, December 9, and investors are hoping for a strong performance from the online pet supplies retailer that struggled on the market. stock market so far this year. .

CHWY given by YCharts.

The graph above is proof that the Chewy stock was vastly underperforming in 2021, which seems a bit surprising given its impressive customer base growth, increased spending by pet parents from company and a rapidly increasing turnover. However, the company’s upcoming earnings report could bring the action to life and help it end the year on a high. Let’s see why this can be the case.

Chewy could live up to expectations this time around

Chewy posted a larger-than-expected loss when releasing its second quarter results on September 1 thanks to increased investments made in “salaries, benefits and hiring incentives in our distribution network to maintain customer experience and business continuity “. The company also increased its marketing spend as a percentage of sales in the last quarter in an effort to generate strong long-term customer acquisition.

Chewy also struggled with supply shortages in the second quarter, which led to high out-of-stock levels and hurt sales. Higher spending and weaker sales led Chewy to post an adjusted loss of $ 0.04 per share last quarter, which was slightly above Wall Street’s expectations of a loss of $ 0.02 per share.

Dachshund sleeping on a bed with an eye mask.

Image source: Getty Images.

Chewy expects third-quarter revenue of $ 2.21 billion in the middle of its forecast range, which would translate to a 24% jump from the prior year period. Wall Street’s expectations are in line with Chewy’s earnings estimate, while analysts expect the company to cut its adjusted net loss per share to $ 0.04 from the net loss of 0.08 $ per share of the previous year.

There are several reasons why Chewy could do better than Q2 and live up to expectations this time around. First, it appears that online pet retailers have been successful in passing the cost increases on to customers. This is evident from rival Petcorecent earnings from, which CEO Ron Coughlin noted on the November earnings conference call that:

With regard to inflation, like the market at large, we have seen price increases on products supplied by suppliers that we have been able to pass on. The high end of the pet category that we are focusing on is very inelastic. Overall, we did not see any impact on unit volumes.

A similar scenario at Chewy could help ease some of the pressure resulting from rising costs and help it meet Wall Street’s earnings expectations. The second factor likely to boost Chewy’s third quarter results is increased customer spending. Chewy saw a 13.5% year-over-year increase in net sales per active customer (NSPAC) in the second quarter.

This was the first time Chewy’s NSPAC had crossed the $ 400 mark, and it was a significant acceleration from previous quarters.

Metric

Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Q2 2021

Net sales per active customer

$ 357

$ 356

$ 363

$ 372

$ 388

$ 404

Year-over-year growth

6.6%

3.2%

2.8%

3.3%

8.7%

13.5%

Data source: Quarterly letters to Chewy shareholders.

Chewy could see a nice rise in NSPAC again in the third quarter as its customers tend to spend more money over time. He estimates that customers spend $ 700 in their fifth year with the business, up from $ 400 in year two, which means long-term Chewy customers have likely increased their spending.

All of this indicates that Chewy could create a positive surprise when it releases its quarterly results.

Why it makes sense to buy before profits

Chewy is trading at 3.44 times sales, which is a discount from the 5.6 multiple of the company’s sales in 2020. It should be noted that Chewy is on track to end the year with a sales growth of between 25% and 26%, and that it could maintain such impressive levels of growth thanks to its strong share in the rapidly growing online pet retail market.

That’s why investors looking to get into a high-growth company that could deliver a healthy long-term rise should take a closer look at Chewy before releasing its results, as the stock could explode thanks to a set of numbers. solid.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.


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