Chewy Stock Gains Attention Amid Rising Profit Margins

Chewy's stock spurs interest with analysts predicting a 25% upside. The company shows impressive EPS growth despite slowing sales, positioning it as a potential buy for investors seeking opportunities.

Date: 04-04-2025

AI Rating: 8

Chewy's Performance Overview

Analysts at RBC Capital Markets have reiterated their buy rating for Chewy (NYSE: CHWY) with a target price of $42, indicating a significant potential upside. This bullish sentiment is largely due to the full-year fiscal 2024 results that indicate strong earnings per share (EPS) growth and profitability expansion, despite a normalization in sales growth rates.

Chewy's EPS increased tenfold in fiscal 2024, while revenue growth stood at 6%. This stark increase in earnings suggests that the company is effectively managing its operations and could capitalize on economies of scale even in an environment where sales growth has slowed to 5-10%.

The company's current profitability metrics reveal a higher net profit margin, a reflection of improved cost management and pricing power amidst rising inflation and competition. Chewy is currently trading at 37 times trailing earnings and 27 times forward earnings estimates, which are considerably more appealing compared to its previous high valuations during the peak demand periods in 2020 and 2021.

While the stock appears historically discounted based on the price-to-sales ratio, the fundamental improvements in profitability could set the stage for further positive performance in the coming months. High operational leverage can yield substantial benefits as sales start to stabilize, making the stock an attractive investment opportunity.

Conclusion

In summary, Chewy showcases robust earnings, improving profit margins, and an outlook that could benefit from further expansion, making it a noteworthy consideration for investors looking for quality companies in today's market.

Stocks: CHWY