Chewy Inc (CHWY, Financial) has recently experienced a notable daily gain of 25.42%, contrasting with a slight three-month loss of 0.12%. With an Earnings Per Share (EPS) of 0.09, investors might wonder if the stock is significantly undervalued. This analysis seeks to explore Chewy's valuation in depth, encouraging readers to consider whether its current market price truly reflects its intrinsic value.
Company Introduction
Founded in 2011 and going public in 2019 after its acquisition by PetSmart in 2017, Chewy is the largest e-commerce pet care retailer in the US. It reported impressive sales of $11.2 billion in 2023. Chewy's business spans across pet food, treats, pharmacy, and hard goods like crates and leashes. Despite its robust sales figures, a critical examination of Chewy's stock price compared to its GF Value, which estimates the fair intrinsic value, suggests that the stock might be significantly undervalued.
Understanding GF Value
The GF Value is a proprietary measure used to determine the fair value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance, and future business performance estimates. According to this metric, Chewy's current stock price of $21.21, with a market cap of $9.20 billion, appears significantly undervalued. This discrepancy suggests a potential for higher long-term returns than the company's business growth alone might indicate.
Financial Strength and Stability
Investing in companies with robust financial health is crucial to minimize the risk of capital loss. Chewy's cash-to-debt ratio of 2.15, which ranks better than 77.61% of its industry peers, reflects a relatively strong position. This financial stability is supported by a GuruFocus financial strength rating of 6 out of 10.
Profitability and Growth Prospects
Chewy has demonstrated fair profitability, with an operating margin of -0.21%, ranking below 71.04% of its industry counterparts. The company's growth metrics, such as the 3-year average revenue growth rate, outperform 71.32% of competitors, although its EBITDA growth rate has stalled. These factors are crucial for assessing the potential for future value creation.
Evaluating ROIC vs. WACC
Comparing Chewy's Return on Invested Capital (ROIC) of -1.87 to its Weighted Average Cost of Capital (WACC) of 12.23 reveals challenges in generating cash flow relative to capital invested. This comparison is vital for understanding whether the company is creating value for shareholders.
Conclusion
In conclusion, while Chewy displays signs of being significantly undervalued according to GF Value, its financial health and profitability provide a mixed picture. Investors should consider both the potential for higher future returns and the current financial metrics before making investment decisions. For more detailed financial insights into Chewy, explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
