Can you feel the heat? The so-called dog days of summer are upon us, and enterprising investors should be on the lookout for buy-low, sell-high opportunities. Chewy (NYSE:CHWY) might not be the most obvious choice, but there’s definitely something going on as Chewy shares are suddenly trading with high volume. After digging into the data on Chewy and seeing what all of the fuss is about, I am now unabashedly bullish on CHWY stock.
Chewy sells a variety of pet supplies online, including food, collars and leashes, toys, and even medicine. This business model might raise scary memories of Pets.com stock, which was emblematic of the dot-com bubble and crash of the early 2000s.
Don’t worry about Chewy ending up like Pets.com, though. A fresh quarterly report reveals that Chewy is not only a profitable business venture, but the company is doing better than some of the experts on Wall Street had anticipated. In addition, Chewy is now doing something that many successful businesses do – but we’ll get to that in a moment.
A Big Rip after a Long, Painful Dip
Chewy was a darling among stock traders during the boom period of 2020’s second half and early 2021. That’s because, during the peak of the COVID-19 pandemic, many people opted to purchase their pet supplies online.
However, Chewy doesn’t benefit from the pandemic catalyst anymore in 2024. CHWY stock is currently far below its peak price of more than $100, and some skeptics might wonder whether it will ever recover.
Yet, the tide of sentiment can change direction in just a single day. Today, Chewy stock is up 25.8% midday, and the trading volume is practically off the charts. Could this be the start of another run to $100?
Let’s not get ahead of ourselves. Before you put a dog in the race with a share position, you’ll definitely want to find out why Chewy, of all companies, is suddenly trending.
It all has to do with Chewy’s financial results for Fiscal Year 2024’s first quarter. Chewy CEO Sumit Singh declared, “Fiscal year 2024 is off to a solid start.” That’s all fine and well, but were Chewy’s results really “solid,” and why are stock traders suddenly bidding up CHWY stock?
Chewy Delights Investors with a Buyback Program
Besides paying dividends (which, I’ll admit, Chewy doesn’t currently do), how can companies demonstrate respect to their shareholders? One answer is that they can buy back their own shares, and that’s exactly what Chewy will do.
To be more specific, Chewy’s board of directors authorized a share repurchase program of up to $500 million of the company’s Class A and/or Class B common stock. Typically, only confident businesses engage in this practice. After all, a company doesn’t normally buy its own shares if it expects the price to go down.
I suspect that Chewy’s share buyback program announcement prompted today’s sharp rally just as much as the company’s quarterly results did. Yet, we shouldn’t overlook Chewy’s “solid” (to borrow the CEO’s adjective) Q1-FY2024 financial performance.
A notable highlight of the quarter was Chewy’s Autoship sales, which increased by 6.4% year-over-year to $2.23 billion. Autoship, as the name suggests, enables Chewy’s customers to get certain products shipped automatically at a discount.
This is an essential part of the company’s business model since Autoship customer sales comprised 77.6% of Chewy’s net sales in Q1 of FY2024. I feel that the convenience of the subscription model is what made Amazon (NASDAQ:AMZN) the e-commerce behemoth that it is today. So, it’s a smart move for Chewy to focus strongly on its Autoship sales.
Looking at the bigger picture, Chewy’s revenue grew by 3.1% year-over-year to $2.88 billion, edging out the consensus estimate of $2.85 billion. Furthermore, Chewy reported adjusted earnings of $0.31 per share, up 55% year-over-year and far ahead of Wall Street’s consensus call for $0.20 per share.
Is Chewy Stock a Buy, According to Analysts?
On TipRanks, CHWY comes in as a Moderate Buy based on 13 Buys, six Holds, and one Sell rating assigned by analysts in the past three months. The average Chewy stock price target is $22.66, implying 6.2% upside potential.
If you’re wondering which analyst you should follow if you want to buy and sell CHWY stock, the most profitable analyst covering the stock (on a one-year timeframe) is Doug Anmuth of JPMorgan (NYSE:JPM), with an average return of 27.34% per rating. Click on the image below to learn more.
Conclusion: Should You Consider Chewy Stock?
As we’ve discovered, Chewy handily beat the consensus EPS forecast and, to use Singh’s phrase again, delivered a “solid start” to the fiscal year. Meanwhile, CHWY stock appears to be bouncing off of a very low level, with a revisit of $100 being possible but not guaranteed.
Moreover, Chewy is demonstrating excellent progress with the company’s Autoship program and is inspiring confidence through share buybacks. Hence, when all is said and done, I am strongly bullish on CHWY stock and believe it is worthy of consideration for a moderately-sized share position.
