In the volatile world of stock trading, Chewy Inc (CHWY, Financial) has recently seen a notable decrease of 5.48% in its stock price, contributing to a 3-month loss of 4.52%. Despite these fluctuations, the Earnings Per Share (EPS) stands at a modest 0.09. This analysis seeks to determine whether Chewy (CHWY) is significantly undervalued and what that implies for potential investors.
Company Overview
Founded in 2011 and later acquired by PetSmart in 2017, Chewy has grown into the largest e-commerce pet care retailer in the US. By 2023, it reported impressive sales of $11.2 billion across various categories including pet food, over-the-counter medications, and hard goods. Despite its robust sales figures, Chewy's current stock price is $16.04, with a market cap of $7 billion—figures that seem misaligned with its GF Value of $44.91, suggesting a significant undervaluation.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. For Chewy, the GF Value suggests a fair trading value of $44.91 per share, which is substantially higher than its current trading price. This discrepancy indicates that Chewy is significantly undervalued, presenting a potentially lucrative opportunity for investors.
Financial Strength and Stability
Assessing a company's financial strength is crucial in minimizing the risk of capital loss. Chewy's cash-to-debt ratio of 2.15 ranks it better than 77.67% of its industry peers. With a financial strength rating of 6 out of 10, Chewy demonstrates a fair level of financial health, which is reassuring for investors.
Profitability and Growth Prospects
Despite its fair profitability ranking of 5 out of 10, Chewy has shown a commendable revenue growth rate of 13.7% over the past three years, outperforming 71.36% of its competitors. However, its operating margin of -0.21% and a return on invested capital of -1.87% raise concerns about its efficiency in converting investments into profitable returns.
Comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) further illustrates challenges in profitability, as depicted in the historical ROIC vs WACC comparison below:
Conclusion
While Chewy (CHWY, Financial) appears significantly undervalued according to GF Value, its financial stability and growth prospects present a mixed picture. Investors should consider both the potential for value appreciation and the underlying financial and operational risks. For a deeper dive into Chewy's financials, visit its 30-Year Financials here.
To discover other high-quality companies that may deliver above-average returns at reduced risk, consider exploring the GuruFocus High Quality Low Capex Screener.
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.
