Chewy (CHWY  ) has benefitted from the acceleration in e-commerce spending. It resulted in a strong rally in the company's stock price. Yet, the stock has declined 15% since its second-quarter earnings report despite the company topping expectations for the top and bottom-line and issuing strong guidance. The two major factors are the risk-off sentiment regarding high-multiple tech stocks and investors' growing expectations for the stock.

Inside the Numbers

Chewy reported revenue of $1.7 billion which was slightly higher than analysts' expectations of $1.7 billion and 48% higher than last year's second quarter. Earnings per share came in at -$0.08 which was higher than expectations of -$0.17.

Adjusted EBITDA margins also were 0.9% higher than expected which is a positive indication that Chewy will be able to translate its growth into future profits. In the second quarter, Chewy had 16.6 million active users with net sales per active customer of $356 on a trailing 12-month basis. This was slightly below last quarter and consensus.

Next quarter, the company expects sales of $6.78 billion to $6.825 billion which were an upgrade from its previous guidance and the consensus of $6.65 billion. Due to the coronavirus, Chewy has experienced an acceleration in growth that required significant investments in technology, fulfillment, and hiring of new employees. The company was able to handle this surge in orders with minimal disruptions.

Stock Price Impact

Chewy was initially 2% higher after its earnings. The tepid reaction despite the strong report is a sign that investors are now looking past its growth and focusing on how much of its gains will be sustained. Additionally, while the company's growth is impressive, it's been outpaced by the stock price, so multiples haven't really compressed.

As a result, Chewy's stock is 28% off recent highs. Even for bulls, this is a healthy correction given that the stock was up nearly 300% since its March lows. However, it's clear that the acceleration in sales has now been priced in. Now, the stock is going to have to validate its high multiples. It's also going to face competition from companies like Amazon (AMZN  ) and other pet retailers who aren't going to willingly cede the online market. This could result in margin compression and delay its path to profitability.

However, the dip in the stock price doesn't change Chewy's story which remains attractive. The pet market and e-commerce are both booming in the U.S. While most industries are struggling for growth, both are growing at annual double-digit rates. Chewy is the leader in selling pet products online. So far, it has focused on staples, but it could use its relationship with customers to also start adding more higher-margin items like insurance and veterinary services.