The Dania Beach-based US pet food retailer Chewy (CHWY) will be publishing its financial results covering the first quarter of its 2021 fiscal year this Thursday and market participants will be expecting a sound jump in the firm’s top-line amid the continuation of what could be a long-lasting pandemic tailwind for the company.
Last year was quite positive for the company as its sales jumped 47% compared to 2019 since consumers turned to the firm’s e-commerce platform to buy supplies for their pets during lockdowns.
However, as quarantine protocols continue to be eased in the US on the back of en-masse vaccinations, Chewy’s future growth could be slowed down and market players will probably be looking for any signs of that – if any.
I invite you to join me in the following Chewy share price forecast to take a closer look at what could be in store for the firm now that the pandemic is becoming an item in the rearview mirror.
What is the market expecting from Chewy’s Q1 2021 results?
According to data compiled by Seeing Alpha, Chewy’s sales are expected to land at $2.13 billion by the end of this first quarter of the company’s 2021 fiscal year – a figure that represents a 31.3% jump compared to the same period last year.
This positive annual performance should be aided by a jump in the number of customers added by the company, as Chewy managed to attract 5.7 million more customers during 2020 – a number that results in a 43% increase in its user base. Since 2018, the firm has managed to grow its client base by around 35% per year. Moreover, net sales per active customer have also been expanding during the period, moving from $334 to $372 for a compounded annual growth rate (CAGR) of 5.54%.
Meanwhile, the company reported a surge in pet adoptions during the year as the pandemic prompted more people to seek companion while they remained locked down.
Other positive trends including an expanding market and higher penetration of online sales should also aid the company in producing positive results, while the management believes that the tailwind resulting from the COVID-19 health emergency will outlive the pandemic.
On the profitability front, the market is still expecting to see Chewy posting net losses for the period as reflected by the consensus earnings per share (EPS) for the three months ended on May 2021, which currently stands at minus $0.02. However, that number would represent an improvement compared to the results produced by the firm during the same period a year ago, as Chewy reported a net loss per share of $0.12 back then.
An expansion in the firm’s gross margins should be one of the supporting factors for milder losses, as the company managed to expand its top-line margins by 190 basis points to 25.5% by the end of 2020.
Analyst ratings for Chewy
More than half of the analysts covering Chewy at the moment are bullish on the stock, with a total of 12 buy recommendations among the 18 ratings compiled by Seeking Alpha.
Meanwhile, the consensus Chewy share price forecast for the next 12 months currently stands at $102, offering a 35.3% upside potential if that target is hit. However, that target has stood flat since the year started, possibly as analysts await the release of the firm’s results covering this first post-pandemic quarter to see if Chewy’s pandemic growth will effectively outlive the health crisis.
Chewy share price forecast
Chewy’s sales have been advancing steadily since 2018, with the firm’s top-line moving from $2.1 billion to $7.15 billion last year at a 50.2% CAGR. Prior to the pandemic, the firm’s revenue growth was decelerating a bit and this is perhaps the most important factor to keep an eye on moving forward as a return of the firm’s pre-pandemic growth rates of around 35% to 40% could push Chewy’s valuation higher.
For now, the stock is being valued at 3.4 times the business’ forecasted 2022 sales – a fairly conservative multiple for a firm that has been reporting such an outstanding growth in the past. However, the market appears to be expecting a slower 27.5% jump in revenues amid a higher comparative baseline from last year’s positive pandemic-led performance.
On the other hand, the company’s improving gross margins and bottom-line profitability could also point to a potential undervaluation of Chewy as the firm continue to progress towards reporting its first annual net profit.
In this context, based on a combination of bullish price targets, improving top-line and bottom-line performance, and a strong balance sheet, Chewy appears to be a solid growth stock in the US pet market, especially if these first-quarter results point to what could be a long-lasting shift in consumer preferences towards buying pet supplies over the internet.
However, from a technical standpoint, the stock’s outlook is bearish as the price action is struggling to move above the 23.6% retracement level shown above. Based on the current trajectory, chances are that the stock will retest the lower trend line support highlighted in the chart, which should now act as resistance. A rejection of that level, especially on the back of a disappointing earnings release, should result in a near-term pullback to the $64 level.
If that happens, this would provide an opportunity for late buyers to enter a long position on what seems to be a promising growth stock at a more decent price point.
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