On Monday, CFRA reaffirmed their Hold rating on Chewy Inc . (NYSE:CHWY) with a steady stock price target of $23.00. The reiteration comes amidst a notable increase in the stock's volatility after an SEC filing disclosed that Keith Gill, known for his role in the GameStop (NYSE:GME) trading frenzy, has taken a 6.6% ownership in Chewy through the acquisition of 9 million Class A common shares.
The analyst from CFRA highlighted that while the trading patterns reminiscent of the GameStop episode might reoccur, investors should anticipate continued volatility in Chewy's stock.
The company, which shares a connection with Ryan Cohen and has a significant short interest, presents a contrast to GameStop in terms of its underlying business dynamics. Chewy has recently achieved a crucial milestone by reaching profitability and generating free cash flow.
Chewy's short interest stands at approximately 15% of its float, translating to around 5% of the total shares outstanding. This is due to the fact that only about a third of Chewy's 436 million outstanding shares are freely traded on the market. BC Partners, the largest shareholder of Chewy, holds a majority stake exceeding 50% of the common shares.
In recent developments, Chewy entered into an agreement last week to repurchase 17.6 million shares from BC Partners at a cost of $500 million. The CFRA analyst's position remains unchanged, advising investors to maintain their Hold status on Chewy's shares.
In other recent news, Chewy has been the center of significant developments. Keith Gill, also known as "Roaring Kitty," has disclosed a 6.6% stake in the online pet products retailer, sparking interest in the financial community.
In a strategic move towards capital efficiency, Chewy has also entered into an agreement to repurchase 17,550,000 shares of its Class A common stock at a 5% discount, with the transaction expected to be completed by June 2024. This decision reflects the company's confidence in its growth strategy and margin expansion.
Several investment banking firms have adjusted their outlooks on Chewy. Jefferies raised its price target citing the company's ability to scale up and achieve greater profitability, while Barclays maintained its Overweight rating with a steady price target, despite a trend of pet surrenders outpacing adoptions.
Similarly, Mizuho Securities, Evercore ISI, and Piper Sandler have all increased their price targets for Chewy, following the company's strong first-quarter results and revised EBITDA forecast for the year.
These developments follow Chewy's first-quarter performance marked by strong Autoship sales, record-high Gross Margin, and a record-high EBITDA Margin. Despite a slight decline in active customers, Chewy's revenue for the second quarter is expected to align with Wall Street forecasts.
The company has also reiterated its revenue guidance for the full fiscal year 2024 and improved its FY24 EBITDA margin guidance, raising the midpoint from 3.8% to 4.2%. This series of recent developments underscores the dynamic nature of Chewy's operations and market position.
InvestingPro Insights
As Chewy Inc. navigates through market fluctuations and investor scrutiny, real-time data and analysis from InvestingPro provide a deeper perspective on the company's financial health and stock performance.
With a market capitalization of $11.29 billion, Chewy's valuation reflects a high P/E ratio of 134.07, indicating that investors are paying a significant premium for the company's earnings. Despite this, the company's balance sheet holds more cash than debt, and net income is expected to grow this year, offering a positive outlook for future profitability.
InvestingPro Tips suggest that Chewy's stock has seen a strong return over the last month and three months, with an impressive 28.43% and 69.3% price total return, respectively. These metrics underscore the stock's recent momentum, aligning with the CFRA analyst's observation of increased volatility.
Moreover, six analysts have revised their earnings estimates upwards for the upcoming period, signaling confidence in Chewy's earning potential. For investors looking to delve further into Chewy's financials and stock analysis, InvestingPro offers additional insights and tips, which can be accessed with a special offer using the coupon code PRONEWS24 for up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription.
While Chewy's high valuation multiples, such as the P/E and Price / Book ratios, may raise concerns about its current stock price relative to near-term earnings growth, the company's profitability over the last twelve months and the lack of dividend payments suggest a reinvestment strategy aimed at fostering growth. With 12 more InvestingPro Tips available, investors have ample resources to make informed decisions on their holdings in Chewy Inc.
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