Pets have been a part of our lives since forever. And while we find solace in the companionship of these non-human friends, many have also based businesses on it. An example is the online pet product retailer, Chewy, Inc. (NYSE: CHWY).
Source: RODNAE Productions
What Has Happened?
Chewy’s is a story that is already very familiar across stocks that benefited from the global lockdown the pandemic enforced on us. The online pet product retailer made huge profits from pet parents, who turned to it to keep their pets fed and occupied during the pandemic.
The chewy stock soared by almost 400% but has lost about half of the growth to a dip. This dip is majorly fueled by investors’ uncertainty about what’s going to happen to the stock in a post-pandemic world.
Why It Matters
This dip matters because we believe it is a minor setback, especially with the strong fundamentals of the company. Net sales grew by 26.8% year-on-year in the second quarter of FY2021 to $2.16 billion. Active customers shot up by 21.1% to 20.1 million from the previous year. In addition, Chewy recorded that its net loss dropped by half to $16.7 million over the year.
Source: Chewy
These fundamentals are actually so steady that we believe the dip on the stock is quite overrated. The tech stock sell-off at the beginning of the year didn’t help matters, though.
What Next?
Six words: Buy the dip! Buy the dip!!
We believe the Chewy stock still has a large room for growth. Just 8% of pet product sales were done through eCommerce in the US in 2015. This figure is touted to increase to 53% by 2050. And with a market share of 41% among online pet retailers, Chewy is positioned to reap more profits going forward.
Technical Analysis
The CHWY stock rests on the $60 – $64 support level. What it does here determines where the stock is headed in the near future.
A breakout from this level to the downside could doom the stock to a further drop to the $42 – $46 support level. However, a bouncing off of this level will bring the stock closer to the descending trendline that keeps the stock in a downtrend.
But all these are the near future projections. Long term, we believe Chewy is headed for higher price levels, which makes the current $62.9 price a bargain.
