Chewy Inc (CHWY, Financial) has been on a rollercoaster ride with a daily gain of 6.55%, yet a 3-month loss of -7.44%. With an Earnings Per Share (EPS) sitting at $0.09, investors are questioning whether the stock is significantly undervalued. This article aims to explore Chewy's valuation in-depth, providing insights into whether the current market price reflects the company's intrinsic value.
Company Introduction
Chewy Inc (CHWY, Financial), the largest e-commerce pet care retailer in the US, has made an impressive mark in the industry with $11.10 billion in sales. Founded in 2011 and going public in 2019, Chewy has expanded its offerings to include pet food, treats, pharmacy products, and various pet accessories. Despite its robust sales, the company's stock is currently trading at $18.54, which begs the question: how does this compare to Chewy's fair value?
Summarize GF Value
The GF Value is a unique metric that calculates the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. According to this measure, Chewy (CHWY, Financial) appears to be significantly undervalued with a GF Value of $44.75, suggesting that the stock could offer a substantial return over the long term.
With a market cap of $8.10 billion, Chewy's current stock price indicates that investors could potentially enjoy much higher returns than the company's growth rate alone might suggest. This valuation presents an attractive opportunity for those looking to invest in a company with strong future prospects.
Financial Strength
Investing in companies with robust financial strength is crucial for minimizing the risk of capital loss. Chewy's financial health, with a cash-to-debt ratio of 2.15, is commendable and ranks well within the Retail - Cyclical industry. GuruFocus awards Chewy a financial strength rating of 6 out of 10, signifying a stable financial foundation.
Profitability and Growth
Profitable companies usually pose less investment risk, and Chewy has maintained profitability over the past decade. However, with an operating margin of -0.21%, its profitability is considered poor within its industry. Despite this, Chewy's 3-year average annual revenue growth rate of 13.7% is promising and ranks favorably against its peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) provides insight into its value creation. Chewy's ROIC of -1.87 against a WACC of 12.11 suggests that the company has struggled to generate adequate cash flow relative to the capital invested.
Conclusion
In conclusion, Chewy's stock shows strong indications of being significantly undervalued. Despite fair financial health and poor profitability, the company's growth outperforms a substantial number of competitors in the Retail - Cyclical industry. For a more detailed analysis, interested investors can review Chewy's 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.
