Is Chewy Stock a Wise Investment Ahead of Q2 Earnings?

As Chewy Inc. CHWY prepares to release its second-quarter fiscal 2024 earnings on Aug 28 before the opening bell, investors are keenly evaluating whether the stock offers a compelling investment opportunity. The pet-centric e-commerce company has attracted significant attention, thanks to its robust growth trajectory and strategic initiatives. However, with the earnings just around the corner, it is crucial to determine whether Chewy remains a wise investment opportunity at this stage.

Chewy's impressive growth, solid market position and loyal customer base have cemented its popularity among investors. The Zacks Consensus Estimate places revenues at $2.86 billion for the upcoming quarter, suggesting a 2.8% increase from the year-ago period.

On the earnings front, the consensus estimate has held steady at 22 cents a share over the past 30 days, implying a substantial 46.7% year-over-year increase.

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Chewy has a strong track record, with an average earnings surprise of 57.7% over the past four quarters. In the last reported quarter, the company exceeded the Zacks Consensus Estimate by an impressive margin of 47.6%.

What Zacks Model Says About CHWY

Our proven model predicts that Chewy is likely to beat earnings this time. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat, which is the case here.

Chewy has an Earnings ESP of +4.55% and carries a Zacks Rank #2. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter.

Factors at Play

Chewy's strategic focus on expanding its product offerings and enhancing customer experience is likely to have contributed toward revenue growth. By consistently broadening its inventory with new and exclusive items, Chewy meets evolving customer preferences and needs. This approach, coupled with strategic promotions and targeted marketing initiatives, is anticipated to attract new customers while encouraging increased spending from existing ones.

The Autoship program's continued success is also expected to have played a crucial role in driving revenues. As the program grows, its convenience and value are likely to lead to higher customer retention and repeat purchases.

The introduction of the Chewy Plus membership program represents another important factor. As this program gains traction, the added benefits, such as free shipping and exclusive discounts, are likely to stimulate higher purchase frequencies and larger basket sizes.

Chewy's expansion into new markets, particularly its efforts in Canada and other international regions, provides additional revenue growth potential. This geographic diversification opens up new avenues for customer acquisition. Moreover, Chewy's venture into veterinary services through the Chewy Health division is set to attract pet owners seeking comprehensive care for their pets. This move is expected to create cross-selling opportunities and increase customer lifetime value, further contributing to revenue growth.

CHWY Leads the Pack

Chewy has witnessed an impressive surge in its stock price over the past three months, with the stock rallying 66.7%, significantly outpacing the industry's modest increase of 0.4%.

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CHWY has also outshined its competitors, including BARK, Inc. BARK, Petco Health and Wellness Company, Inc. WOOF and Central Garden & Pet Company CENT.

While BARK shares have climbed 43.3% during the said time frame, WOOF and CENT have faced declines of 10.7% and 13.7%, respectively.

Is CHWY a Strong Case for Value Seekers?

From a valuation perspective, Chewy shares present an attractive opportunity, trading at a discount relative to historical and industry benchmarks. With a forward 12-month price-to-sales ratio of 0.98, below the five-year median of 1.72 and the industry's average of 1.73, the stock offers compelling value for investors seeking exposure to the sector.

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Investment Thesis

Chewy has showcased strong performance, marked by substantial stock price appreciation, robust financial metrics and strategic initiatives. Despite its recent surge, Chewy's stock continues to offer attractive valuation metrics alongside promising growth prospects. The company's commitment to innovation, such as expanding its Autoship program and services like Chewy Health, not only strengthens customer loyalty but also opens new revenue streams. Coupled with its strategic expansion into international markets and a strong focus on operational efficiency, Chewy is well-positioned to capitalize on the growing pet care industry.

Conclusion

Investing in Chewy ahead of its second-quarter earnings release appears prudent. The company's robust growth trajectory, underpinned by its strategic focus on product expansion and enhanced customer experience, positions it for continued success. The expected revenue growth, driven by initiatives like the Autoship program and the Chewy Plus membership, highlights the company's ability to attract and retain customers.

Additionally, Chewy's expansion into international markets and the veterinary services sector reinforces its potential for long-term growth. With a strong history of surpassing earnings expectations and promising indicators for the upcoming quarter, Chewy represents an appealing investment opportunity.

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