Chewing on Chewy's 6% Dip: Thursday's Stock Slide
Chewy's stock took a hit on Thursday, following a day of investor backlash after its third-quarter earnings report. Although there were no newsworthy events from the company, analyst Christopher Bottiglieri of Exane BNP Paribas changed his recommendation to neutral, moving away from the 'outperform' label he had previously assigned. This shift caused Chewy's share price to plummet by 6% during the trading session, while the S&P 500 index only dropped by 0.2%.
Before markets opened that day, Bottiglieri downgraded his recommendation, citing reasons that weren't immediately apparent. Despite the downgrade, other analysts displayed optimism, raising their price targets moderately. This group included analysts from TD Cowen, Guggenheim, and Goldman Sachs.
Chewy reported growth in revenue and a shift to profitability despite falling short of consensus analyst estimates for net income. While no analysts upgraded their recommendations that day, several did increase their price targets.
Investors typically expect retail stocks to deliver robust growth figures, and Chewy's 5% year-over-year top-line improvement may not have been enough to satisfy their expectations. However, management is forecasting a notable improvement in growth for the current quarter, projecting a 13% increase.
It's worth noting that Chewy maintained a strong return on investment (ROI) metric while investing in customer acquisition. Despite concerns about higher advertising spend, some analysts opined that these concerns were short-sighted and didn't fully reflect the company's long-term growth potential.
The pet care company added approximately 160,000 net active customers in the third quarter, further emphasizing its strong growth potential. Despite the recent decline in stock price, some analysts remain bullish on Chewy's earnings potential, forecasting an average EPS of $0.24 for 2025, with a range of $0.19 to $0.29.
It's essential to consider the larger market trends and analyst opinions when evaluating Chewy's recent performance and potential future growth. Buying or selling shares based solely on short-term market shifts may not be the most prudent strategy, and investors should conduct thorough research and consider their risk tolerance before making investment decisions.
Investors might be looking for alternative opportunities after seeing Chewy's share price decrease due to analyst Bottiglieri's downgrade. Regardless, some finance experts still view Chewy as a promising investment, considering its growth potential and strong ROI from customer acquisition.
