The company actually opened 10% higher following the strong report and positive commentary on its conference call, however, it gave up some of these gains through the course of the day.
Inside the Numbers
In Q4, Chewy reported an adjusted profit of $0.05 per share and revenue of $2.04 billion. This beat expectation of a loss of $0.10 per share and $1.96 billion in revenue.
Revenue was 51% higher than last year's Q4, and total customers reached 19.2 million which was a 43% gain. Consumables accounted for 70% of revenue, but the company's health care services sales are growing and it plans to introduce telehealth services and insurance plans.
Chewy's conference call was also quite bullish with the CEO laying out his vision for the company to continue capturing a share of the $100 billion pet industry which is expected to grow to $120 billion over the next four years. Chewy is launching products in new categories like personalized products and health services which should yield higher margins. It's forecasting 26% revenue growth in 2021 and a slight expansion in margin. This would give the stock a forward PE of 50 which is certainly expensive but reasonable considering the stock's leading position in a growing market.
Stock Price Outlook
Chewy is in the basket of "Coronavirus winners". Many of these stocks were up by many multiples between March 2020 and August 2020 with the most notable including Zoom Video
Now, these stocks have underperformed and have experienced significant corrections between 25 and 45% over the last six weeks. This is due to the rise in interest rates which is a negative headwind for high-multiple stocks in addition to growing pessimism about these companies' ability to maintain the growth necessary to validate these optimistic growth forecasts.
However, some of these stocks will defy these trends and continue to deliver earnings and revenue growth to "grow into" these multiples. For Chewy, it's contingent on the company being able to keep its new customers and continue its current trend of increasing order size. Ideally, it would also be able to increase the sale of higher-margin items like pet insurance and healthcare services.
If it can execute, then Chewy's 35% dip could be a fantastic entry point.