Trading On margin

Buy this fast growing stock, put the fist back before it’s too late

It hasn’t been a good year for soft (NYSE: CHWY) investors. Stock prices of the online pet retailer fell sharply after a formidable start, mainly due to a wider sell-off in tech stocks and concerns about declining sales in a post-pandemic scenario. The downtrend continued after Chewy’s latest results, which did not appease investors although they turned out to be better than expected.

Chewy also raised its guidance for the full year, but the stock fell amid concerns over supply chain constraints that affected sales in the quarter. However, this is a great opportunity for investors to add a high growth company to their portfolios as Chewy’s momentum is still strong and will be here for a long time to come, thanks to the age-old catalysts it is built on.

CHWY given by YCharts

Chewy’s tremendous growth continues

Chewy’s revenue for the first quarter of fiscal 2021 grew nearly 32% year-on-year to $ 2.14 billion, exceeding the high end of its forecast range and Wall’s forecast. Street of $ 2.13 billion. The company’s gross margin jumped an impressive 420 basis points from a year ago as customer spending improved and freight costs returned to normal levels after peaking in the year latest in the aftermath of the COVID-19 outbreak.

The higher gross margin filtered out and helped Chewy post a net margin of 1.8%, a jump of 480 basis points from a year ago. The company’s adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) of $ 77.4 million was a substantial increase over last year’s figure of just $ 3.4 million. Adjusted EBITDA margin stood at 3.6% in the quarter, down from just 0.2% a year ago.

The company also posted a profit of $ 0.09 per share, while analysts expected a loss of $ 0.03 per share. Overall, Chewy saw solid growth across all areas in the last quarter, driven by a sharp increase in its customer base and resulted in additional spend for each customer.

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The company ended the first quarter with 19.8 million active customers, a jump of 31.6% from a year ago. Chewy’s net sales per active customer increased 8.7% year-on-year to $ 388. It should be noted that customer growth has remained exceptional even after the restrictions on shelter-in-place were lifted and normalcy returned. Additionally, Chewy’s sales to every active customer have also accelerated in recent quarters.


Q1 2020

Q2 2020

Q3 2020

Q4 2020

Q1 2021

Active customers (in millions)






Year-over-year growth






Net sales per active customer

$ 357

$ 356

$ 363

$ 372

$ 388

Year-over-year growth






Data source: Quarterly letters to Chewy shareholders.

To continue, Chewy’s days of high growth won’t be over anytime soon. Let’s see why.

Why things can get better

Chewy’s customer base has grown 75% in the past two years, due to the pandemic as pet parents have turned to online shopping to meet their needs. The company says its active customers start spending more on its products and services over time. Specifically, Chewy’s customers have historically spent $ 400 in their second year with the business, rising to $ 700 in the fifth year and $ 900 in the ninth year.

So, Chewy’s revenue and margins can increase dramatically over the next three to four years as net sales per active customer moves north. Add to that the fact that the online pet retail channel is still in its early stages of growth, and it becomes easier to see why the company will continue to add new customers in the long run. .

Chewy estimates that the online channel will account for 53% of pet products and supplies in the United States by 2025, up from 30% last year. The company is well positioned to take advantage of this growth with a strong share of the online pet retail market.

These favorable winds tell us why Chewy increased his revenue forecast for the full year. The company now expects revenue of $ 8.95 billion this year, compared to the previous estimate of $ 8.9 billion, indicating a 25-26% increase year-on-year . The adjusted EBITDA margin is expected to increase in the range of 80 basis points to 120 basis points.

Analysts expect Chewy to maintain these impressive long-term growth rates, estimating that its profits could grow at a compound annual growth rate (CAGR) of over 130% over the next five years. Revenue growth is also expected to exceed 20% for the next two years.

All of this makes Chewy a great growth stock to buy right now given that it is trading 4.2x sales after it pulls out – down from the 2020 average multiple of 5.6 – and investors This opportunity should not be missed as it offers great upside potential. .

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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