Pet ownership has increased since the start of the pandemic, by 9 million dogs and 5 million cats in the U.S., according to the American Pet Products Association. All those dogs and cats need food, beds, chew toys, scratching posts, leashes — the list goes on and on. This should be a boon for online suppliers of pet products, like Chewy (NYSE: CHWY).
Yet Chewy’s stock price is $43.90 as of late trading on March 29, down from a 52-week high of $97.74 in August 2021. What’s going on? And is Chewy a good buy at its current price?
4th Quarter and Fiscal Year Results
Chewy released its results for the fourth quarter and full-year 2021 on March 29, 2022. The company reported a Q4 net loss of $63.6 million, or 15 cents per share, even as sales rose from $2.04 billion to $2.39 billion. Analysts had projected sales of $2.42 billion, MarketWatch reported. This was the third straight quarter the company has posted a loss.
While the stock rose in advance of the announcement, closing up 4.5% at $51.00 a share on March 29, after-hours trading saw a decline of nearly 14%, to $43.90.
Supply Chain Woes and Labor Shortages
Increased demand has been coupled with supply chain challenges, acting as a sort of one-two punch for Chewy. The continued supply chain disruption caused by COVID-19 has continued to make it difficult for the company to meet demand.
Like most companies, especially those with a lot of entry-level jobs, Chewy is likely feeling the effects of a very, very challenging labor market. In September 2021, Chewy announced that it would open three new automated fulfillment centers to boost capacity without having to significantly increase staffing, but these new facilities won’t open until near the end of the year.
Is Chewy Stock a Buy, Sell or Hold?
The bulk of Chewy’s troubles may be behind it now, however, at least as far as analysts and the company itself are concerned.
Of 23 analysts who followed Chewy in February, seven of them rated the stock a strong buy, six rated it a buy, nine rated it a hold, and one gave it an underperform rating, according to Yahoo Finance. None of them recommended selling the stock. The average recommendation is a 2.2 on a scale of 1 to 5, where 1 is a strong buy and 5 is a sell. The average price target, based on 19 analysts’ predictions, is $70.57.
The company’s guidance for the first quarter and fiscal year 2022 is optimistic. Chewy expects to see net sales of $2.40 billion to $2.43 billion in the first quarter, and $10.2 billion to $10.4 billion for the fiscal year.
If you agree that the pet supply sector will remain strong and that Chewy can overcome the supply chain and labor shortage issues that have plagued it in the last year or two, this could be a good time to “buy the dip.” You may need to hold tight for a while, though, as the company works through any remaining supply shortages and labor challenges.
Data is accurate as of March 29, 2022, and is subject to change.
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- Chewy. 2022. "Chewy Announces Fiscal Fourth Quarter and Full Year 2021 Financial Results."
- Chewy. 2022. "Q4 and Fiscal Year 2021."
- MarketWatch. 2022. " Chewy stock tumbles as earnings highlight supply and cost pressures."
- The Guardian. 2022. "Pets prove to be the pandemic’s cute, furry growth area."
- Chewy. 2021. "Q2 Fiscal 2021."