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Is It Too Late to Buy Chewy Stock?

Chewy‘s (CHWY 0.19%) stock soared 27% on May 29 after the company released its latest report. For the first quarter of fiscal 2024, which ended on April 28, the online pet retailer’s net sales grew 3% year over year to $2.88 billion and beat analysts’ estimates by $40 million. Its adjusted earnings per share (EPS) jumped 55% to $0.31 and cleared the consensus forecast by $0.11.

Chewy followed up its earnings beat by announcing a new $500 million buyback plan, which is equivalent to approximately 7% of its current market cap. The bulls were clearly impressed, but is it too late to chase Chewy’s post-earnings rally?

Reviewing Chewy’s past challenges

Chewy’s stock still trades slightly below its initial public offering (IPO) price and more than 80% below its all-time high after its latest gains. The bulls retreated over the past five years as its growth in active customers, net sales per customer, and total sales cooled off.


FY 2019

FY 2020

FY 2021

FY 2022

FY 2023

Active customer growth






Net sales per active customer growth






Net sales growth






Data source: Chewy. Fiscal year ends in January.

Chewy’s growth accelerated throughout the pandemic as pet owners bought more products online. But it struggled to maintain that momentum in a post-pandemic market, and its slowdown worsened as the inflationary headwinds throttled purchases of discretionary pet products. It also faced fierce competition from superstore retailers and Amazon (AMZN -1.48%), which has expanded its selection of private-label pet products over the past several years.

Despite that pressure, Chewy’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) margin turned positive in fiscal 2020 and expanded through fiscal 2023 as it streamlined its spending and focused on growing its net sales per customer. It also turned profitable on a generally accepted accounting principles (GAAP) basis in fiscal 2022, but growth-oriented investors still broadly focused more on its sluggish sales growth rather than its rising profits.

Brighter days could finally be ahead

In the first quarter, Chewy’s active customers declined 2% year over year to just under 20 million. But its net sales per active customer improved nearly 10% as it sold more private-label products, integrated more ads across its marketplace, expanded its pet health insurance plans, and locked more customers into its auto-ship subscriptions, which deliver recurring shipments to customers at discounted rates.

Chewy already generated 76.2% of its net sales from its autoship customers in fiscal 2023, but that ratio climbed to a record high of 77.6% in the first quarter. Its adjusted EBITDA margin also expanded 170 basis points year over year to an all-time quarterly high of 5.7%.

For the full year, Chewy expects its net sales to increase by 4%-6% as its adjusted EBITDA margin expands from 3.3% to 4.1%-4.3%. That would mark its slowest sales net growth since its IPO and merely match analysts’ expectations for 5% growth, but its adjusted EBITDA margin outlook cleared the consensus forecast of 3.8%.

From fiscal 2023 to fiscal 2026, analysts expect Chewy’s net sales to grow at a compound annual growth rate (CAGR) of 6% as its adjusted EBITDA margin expands to 4.8%. We should take those estimates with a grain of salt, but they suggest that Chewy’s business will stabilize over the next few years.

Based on those estimates, Chewy’s stock looks dirt cheap at less than 1 times this year’s sales and 15 times its adjusted EBITDA. That’s probably why the company launched a new buyback plan and why its insiders were actually net buyers over the past 12 months.

So, is it too late to buy Chewy’s stock?

Many investors were initially drawn to Chewy because it was growing like a weed, and its shares soared during the buying frenzy in growth and meme stocks in 2021. The bulls retreated as its growth cooled off and interest rates rose, but it now looks like a value stock. Chewy’s stock could continue to hover near its IPO price as long as inflation stays hot and interest rates remain elevated, but I don’t think it’s too late for patient investors to buy it as a turnaround play.

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