We are all witnesses to the crazy e-commerce industry boom that took place in 2020 and has not come crashing down, yet. Whether it’s food and medicines or pet toys and luxuries, everything is available on digital platforms.
These trends from offline to online have opened material growth prospects for e-commerce and online retail companies, such as Chewy (NYSE:CHWY), a pure-play e-commerce business that sells pet food, treats, pet supplies, medications, and other pet-health products online.
Chewy stock is up nearly 20% up over the past six months, and has surged more than 100% in the past year. Further, it is currently trading at 28.27x forward non-GAAP earnings and 1.16x forward sales, both higher than the industry medians.
So what’s spurred the big thrust higher and will it persist?
Thriving E-commerce Industry
The e-commerce industry has witnessed some of the most dramatic changes in terms of order placement, payments, and delivery tracking platforms.
Revenues in the industry have already climbed from $514.74 billion in 2019 to $1.18 trillion last year. The industry’s revenue has peaked year after year without failure since 2019, and the forecasted graphs do not hint at any interruptions on the horizon.
Statista forecasts that the US e-commerce industry revenue will balloon to $1.84 trillion before the turn of the decade, marking a new high point.
In addition, Mordor Intelligence expects the US e-commerce market to reach $2.15 trillion by 2030, galloping along at a CAGR of 10.4%. A growing population of online shoppers, complemented by the presence of major market vendors, will contribute to the acceleration.
Chewy Against The E-commerce Background
Chewy has been on investor’s radars for some time now, owing to stock rallies after the major slowdowns in 2023. Management deserves plaudits too, when compared to many other retail-wholesale stocks.
The growing interest and fascination of pet parents towards their pets is what’s bringing in the added sales for Chewy. Many pet owners, even in times of financial crises, would rather cut spending on some other expenses but will maintain their paw friends to the utmost capacity.
This has led to product growth and diversification in the segment. This trend goes for foods, treats, medicines, bathing items, and toys, too. Consumers are demanding variety in all aspects and are spoiling their pets.
The future is likely to see the affection towards pets grow in the coming years as more owners treat pets as family members, seeking companionship and emotional reliance on them. Following the trends, the global pet care market is likely to reach a value of around $427.75 billion by 2032, exhibiting growth at a CAGR of 6.5%. This trend is of direct relevance to Chewy as it stands to greatly benefit from it.
Another key factor that is propelling growth at Chewy’s is the improving business model. With the combination of costs under strict budgets and expanding value-added services, the leadership team has been able to sustain its profitability through wider market pressures.
Chewy’s Financial Position
Chewy wrapped up last year on a high with Q4 net sales hitting $3.25 billion, a near 15% increase versus the same quarter a year ago. Gross margin also sidled higher to 28.5%, a 30 basis point bump on a year-over-year basis.
The bottom line was pretty good too with management reporting $120 million in adjusted net income, or $0.28 per share, a pop from $80 million or $0.18 per share during the equivalent quarter the year prior.
If Buffett were rating the company he might say they are “delighting” them because Chewy grew the active customer base marginally to 20.51 million, up from 20.08 million a year earlier.
Free cash flow was the figure that blew everyone away after surging 133% year-over-year to $156.6 million. All in all, Chewy’s strong finish to the year reflects a rock solid business model and galloping momentum to sustain future quarters of growth.
Will Chewy Stock Keep Going Up?
There’s definitely lots to like about this pet care provide with the green check box being ticked for business model, future direction, product rollouts and investments, all of which are paying off and translating to sales growth, ballooning gross margin, and stronger cash flows.
Also, Chewy has the backing of an ever-expanding e-commerce market, which has been on a relentless march higher over the past decade and is not forecasted to dip anytime soon.
Analysts, too, are bullish on the stock’s future and have proposed a consensus price target of $39.40 for the stock. Also, 12 of the 23 analysts have given the stock a Buy rating, whereas the remaining 13 have also recommended a Hold.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.