Why CHWY Stock Could Be a Good Opportunity
When it comes to e-commerce stocks, it’s hard to think of companies more dominant than Amazon.com, Inc. (NASDAQ:AMZN). However, while Amazon’s leading position is hard to dispute in general, when it comes to specialty retail, there are other companies that can give Amazon a serious run for its money.
Check out Chewy Inc (NYSE:CHWY), for instance. Founded in 2011, Chewy runs an e-commerce platform that specializes in pet food and other pet-related products. It has partnered with more than 2,000 brands, built more than seven million square feet of fulfillment centers, and offers 24/7 customer service.
The company’s scale and scope have allowed it to become a major player in the e-commerce pet supply sector.
In fact, some estimates suggest that Chewy Inc has about a 50% share of the online pet-food market in the U.S., while Amazon’s share in this particular market is only 45%. (Source: “U.S. an Anti-Amazon Alliance in Pet-Food,” Global Retail News, last accessed July 27, 2021.)
That said, I should clarify that I’m not arguing that Chewy stock is better than Amazon stock. Instead, my point is that Chewy is a unique e-commerce business that has been growing rapidly despite the presence of Amazon.
Just take a look at Chewy Inc’s latest earnings report and you’ll see what I mean.
In the first quarter of the company’s fiscal year 2021, which ended May 2, it generated $2.1 billion of net sales, representing a 31.7% increase year-over-year. Chewy’s gross margin was 27.6%, marking a 420-basis-point expansion from a year earlier. (Source: “Chewy Announces First Quarter 2021 Financial Results,” Chewy Inc, June 10, 2021.)
More customers are using Chewy’s platform than before. In the reporting quarter, it had 19.8 million active customers. That’s 4.7 million more than what the company reported for the year-ago period. (Source: “Letter to Shareholders,” Chewy Inc, June 10, 2021.)
The company noted that, while its new customer acquisitions moderated from the levels seen during the peak of the COVID-19 pandemic last year, they remain above pre-pandemic levels. In the last two years, Chewy’s active customer base has grown by 8.4 million, or 75%.
Considering there are about 85 million families, roughly 67% of U.S. households, that own a pet, Chewy Inc should have plenty of potential to expand its customer base. (Source: “Pet Industry Market Size, Trends & Ownership Statistics,” American Pet Products Association, last accessed July 27, 2021.)
Moreover, Chewy’s customers are spending more money on its e-commerce platform. In the first fiscal quarter, the company’s net sales per active customer were $388.00. That’s up by 8.7% year-over-year.
One thing that’s particularly worth noting is Chewy Inc’s “Autoship” subscription program. In its first fiscal quarter, Autoship’s sales increased by 69.3% year-over-year to $1.5 billion.
Today, more than half of Chewy’s product catalog is Autoship-eligible. With more products sold through the subscription program, the company is positioned to generate strong recurring revenue.
And it’s not just sales that are booming. In the first fiscal quarter, the company earned net income of $38.7 million, marking a huge improvement from its net loss of $47.9 million in the year-ago quarter.
Chewy Inc (NYSE:CHWY) Stock Chart
Chart courtesy of StockCharts.com
In the pandemic-impacted year that was 2020, e-commerce stocks enjoyed increased investor enthusiasm. Indeed, in the above chart, we see that CHWY stock had an incredible rally last year.
However, as I’ve said many times before, parabolic runs don’t last forever. In the case of Chewy stock, after going parabolic in December 2020, it started to make some sharp corrections.
CHWY stock was able to hit several new highs in early 2021, reaching a peak of $120.00 on February 16. It then had a massive retracement and pulled back to about $65.00 in mid-May.
Most recently, Chewy stock seems to have found more upward momentum and is making a comeback.
Note the significance of the $88.00 mark as shown by the dashed line in the above chart. That price acted as a support level during CHWY stock’s first pullback in late December 2020.
The $88.00 price turned out to be a resistance level when Chewy stock was trading sideways from March to April 2021. The stock tested this level again in early July but was unable to break above it.
Fundamentally, Chewy Inc is a solid e-commerce play.
CHWY stock is currently trading near a critical technical level. Investors might want to start paying attention to Chewy stock now because a breakout could lead to an upside opportunity.