James Star Significantly Increases His Stake In Pet Products Focused Company Chewy (CHWY)

Last Christmas we highlighted an insider purchase by an independent director of Chewy and wrote the following about the company,

With earnings related quiet periods upon us, I was not expecting to see a lot of insider activity last week but was pleasantly surprised to see a number of interesting purchases last week. A pair of mortgage REIT CEOs found their way into our list of top 5 insider purchases but the purchase that captured my attention the most was the sixth largest purchase of the week. James Star, the Executive Chairman of Canadian investment firm Longview Asset Management, purchased $1.79 million worth of Chewy (CHWY) shares on the open market. This is the first insider purchase at Chewy in well over two years as the pet products focused company went on a roller coaster ride from its $22 IPO price in June 2019 to a high of nearly $120 by February 2021 before giving back large swaths of those gains and dropping to the low $50s.

The pandemic related tailwinds that fueled pure play e-commerce retailers like Chewy and Wayfair (W) have subsided and this is reflected in the Chewy’s decelerating revenue growth rate and bottom line losses. Gross margin of 26.4%, despite a 90 basis point improvement year-over-year is also not that exciting. Looking at the cash flow statement, the company is generating significant free cash flow and non-cash stock compensation expense has been coming down for several quarters. During the last 12 months, while net income was just $10.8 million, free cash flow was $169 million. With an enterprise value of $24.4 billion, the stock is certainly expensive on an EV/FCF multiple but doesn’t look that expensive at an EV/Sales of 2.86. If the company can grow or even maintain its current rate of growth (24.14% last quarter) while getting a better handle on expenses, it would be worth exploring Chewy further.

The latest purchase by Mr. Star last week is nearly thrice the size of his prior $1.79 million purchase and the stock is down nearly 48% from his prior purchase. Since we last wrote about the company, both net income and free cash flow turned negative for the trailing twelve month period. The company paying down part of its ballooning accounts payable balance impacted free cash flow negatively two quarters ago. Revenue growth continued to decelerate with year-over-year revenue growth coming in at 13.73% last quarter. The silver lining is that the company reported a surprised GAAP profit of 4 cents per share last quarter compared to expectations of a loss of 13 cents.

Fiscal first quarter 2023 revenue of $2.43 billion was also a new record for the company. Gross margins, while down 10 basis point year-over-year, were up compared to fiscal Q4 2022. I remain underwhelmed by the company but clearly Mr. Star has a divergent opinion. Considering he was on the board of PetSmart before its 2017 acquisition of Chewy, he clearly understands the history of the company and probably feels optimistic about its future.

Welcome to edition 623 of Insider Weekends. Insider buying decreased last week with insiders purchasing $59.53 million of stock compared to $60.26 million in the week prior. Selling also declined to $1.18 billion compared to $802.51 million in the week prior.

Sell/Buy Ratio: The insider Sell/Buy ratio is calculated by dividing the total insider sales in a given week by total insider purchases that week. The adjusted ratio for last week went up to 19.74. In other words, insiders sold almost 20 times as much stock as they purchased. The Sell/Buy ratio this week was unfavorable compared to the prior week when the ratio stood at 13.32.

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Notable Insider Buys:

1. Chewy, Inc. CHWY: $28.72

Director James A. Star acquired 180,636 shares of this pet focused e-commerce retailer, paying $27.71 per share for a total amount of $5 million. 144,509 of these shares were purchased indirectly by Downstream Partners.

P/E: N/A Forward P/E: -287.2 Industry P/E: 46.71 P/S: 1.32 Price/Book: 206.62 EV/EBITDA: -253.9 Market Cap: $12.08B Avg. Daily Volume: 6,305,488 52 Week Range: $22.22 – $97.74

2. United Airlines Holdings, Inc. UAL: $41.16

Director Edward Shapiro acquired 50,000 shares of this airline, paying $44.71 per share for a total amount of $2.24 million.

P/E: N/A Forward P/E: 5.67 Industry P/E: N/A P/S: 0.46 Price/Book: 3.71 EV/EBITDA: -85.71 Market Cap: $13.45B Avg. Daily Volume: 13,810,452 52 Week Range: $30.54 – $57

3. Nerdy, Inc. NRDY: $3.15

Chief Executive Officer Charles K. Cohn acquired 438,400 shares of this online tutoring and learning products provider, paying $2.95 per share for a total amount of $1.29 million. These shares were purchased indirectly by Rarefied Air Capital LLC.

P/E: N/A Forward P/E: -6.3 Industry P/E: N/A P/S: 1.86 Price/Book: 6.54 EV/EBITDA: -1.74 Market Cap: $285.17M Avg. Daily Volume: 881,214 52 Week Range: $1.59 – $13.49

4. Rocket Companies, Inc. RKT: $7.9

Shares of this tech-driven real estate, mortgage, and e-Commerce company were acquired by 2 insiders:

• Chief Executive Officer Jay Farner acquired 118,300 shares, paying $8.44 per share for a total amount of $998,688. Mr. Farner increased his stake by 4.78% to 2,593,907 shares with this purchase.
• Director Matthew Rizik acquired 5,200 shares, paying $8.26 per share for a total amount of $42,929. Mr. Rizik increased his stake by 2.77% to 192,802 shares with this purchase.

P/E: 4.38 Forward P/E: 9.52 Industry P/E: 7.51 P/S: 1.39 Price/Book: 1.73 EV/EBITDA: 4.2 Market Cap: $15.7B Avg. Daily Volume: 4,727,380 52 Week Range: $6.912 – $21.36

5. Carvana Co. CVNA: $22.01

Chief Brand Officer Ryan S. Keeton acquired 40,000 shares of this e-commerce platform for buying and selling used cars, paying $24.74 per share for a total amount of $989,800. Mr. Keeton increased his stake by 116.72% to 74,269 shares with this purchase.

P/E: N/A Forward P/E: -7.19 Industry P/E: 15.09 P/S: 0.28 Price/Book: 24.79 EV/EBITDA: -26.1 Market Cap: $3.91B Avg. Daily Volume: 9,947,961 52 Week Range: $21.61 – $376.83

You can view the full list of purchases from this Insider Buying page.

Notable Insider Sales:

1. The Carlyle Group Inc. CG: $35.96

Director David M. Rubenstein sold 2,000,000 shares of this asset management company for $38.67, generating $77.34 million from the sale.

P/E: 4.88 Forward P/E: 7.83 Industry P/E: 12.82 P/S: 1.64 Price/Book: 2.2 EV/EBITDA: 5.33 Market Cap: $13.01B Avg. Daily Volume: 2,494,465 52 Week Range: $34.62 – $60.62

2. PTC Inc. PTC: $109.09

Director Blake D. Moret sold 551,106 shares of this software and services company for $117.53, generating $64.77 million from the sale. These shares were sold indiretly by Rockwell Automation.

P/E: 26.95 Forward P/E: 20.35 Industry P/E: 48.91 P/S: 6.79 Price/Book: 6.12 EV/EBITDA: 28.06 Market Cap: $12.76B Avg. Daily Volume: 769,969 52 Week Range: $96.55 – $153.73

3. Cactus, Inc. WHD: $50.03

Shares of this wellheads and pressure control equipment company  were sold by 2 insiders:

• President and CEO Scott Bender sold 562,336 shares for $54.04, generating $30.39 million from the sale.
• Senior VP & COO Joel Bender sold 542,336 shares for $54.00, generating $29.29 million from the sale.

P/E: 51.21 Forward P/E: 23.94 Industry P/E: N/A P/S: 7.59 Price/Book: 6.12 EV/EBITDA: 22.09 Market Cap: $3.8B Avg. Daily Volume: 468,358 52 Week Range: $31.65 – $64.18

4. Arista Networks, Inc. ANET: $94.96

Chief Development Officer Andreas Bechtolsheim sold 312,988 shares of this networking company for $103.68, generating $32.45 million from the sale. These shares were sold indiretly by a trust.

P/E: 32.63 Forward P/E: 22.29 Industry P/E: 19.84 P/S: 9.24 Price/Book: 7.05 EV/EBITDA: 27.12 Market Cap: $29.18B Avg. Daily Volume: 1,969,430 52 Week Range: $85.18 – $148.57

5. The Allstate Corporation ALL: $124.59

Chairman, President & CEO Thomas J. Wilson sold 241,828 shares of this insurance company for $133.07, generating $32.18 million from the sale. These shares were sold indiretly by TJW Options LLC 2013 Series.

P/E: 10.35 Forward P/E: 9.51 Industry P/E: 10.39 P/S: 0.7 Price/Book: 1.62 EV/EBITDA: 6.69 Market Cap: $35.16B Avg. Daily Volume: 1,873,255 52 Week Range: $106.11 – $144.46