What a green day today! S&P 500 grows 2.56% and Dow Jones grows 3.12%. As people are going back to work this month, the stock market has price in the reopen news. While I looking forward to go back to office, I also enjoyed this work from home period. Probably because I have spent more time with my cats. Today I want to talk about Chewy ($CHWY) Stock, why the stock has double price in the past 3 months, and whether right now is a good time to buy.
Founded in 2011, Chewy is the largest pet eCommerce business in US, offering everything a pet needed. They are the most liked online destination for pet parents as a result of their broad selection of high-quality products. They offer at great prices and deliver with an exceptional level of care and a personal touch. They partner with more than 1,600 of the best and most trusted brands in the pet industry and offers more than 45,000 products, and they also create and offer outstanding private label products. So it’s like the “Amazon” in pet category.
In 2017, the company was acquired by PetSmart (the Walmart in pet industry) with 3.3 billion. In 2019, Chewy was listed in NYSE (ticker symbol $CHWY), IPO price is $22. Today the stock price has more than doubled and reached $48, with market cap of $19 billion.
The pet product industry is a 95 billion industry in 2019 and expect to keep growing, according to APPA (American Pet Products Association). The global market also expect to grow at 5% for the next 5 years. That gives Chewy large space for growth. In the past 3years, there are trend of “pet humanization”, meaning people treat pets as their family members and spend more time and money take care of them.
Although there are competition from other online and off-line pet stores like Amazon and Petco, Chewy has showed impressive figures last year. The net sales is 4.85 billion, with 24% gross margin. They has 13.5 million active customers, on average spend $360 per year. Compare with competitors, there are 3 advantages: loyalty program, private label products and expended categories.
The online store has Autoship function which can enable recurring purchases for the consumer goods like dog food, cat litter, pets supplements etc. In this way, the consumers can enjoy a discount and save time on re-ordering pet food every month. In 2019, Autoship contributes to 70% total revenue, and it also be the key factor to keep and sell to customers.
Chewy also developed private label products to reduce cost and improve efficiency. In 2016 they launched the brand Frisco, manufacture and sell usage products. In 2017 they created the brand American Journey and Tylee’s, manufacture and sell consumption products. They made introduction content for these 2 provate label brands, and the self-owned products become popular on the platform, account for 10% sales.
The increased categories also become their competitive advantage and growth point. In 2018, they launched Chewy Pharmacy and expand their product lines. Pet owners can consult licensed vet online and buy prescription drugs for their pets.
In a word, Chewy has a good business model, not only e-commerce, but also education, information, consulting and pharmacy. As for the stock price of $48, I think it is high because it grow a lot in the recent Covid-19 period, when people tend to stay at home. So I will take the stock price before Covid-19, which is $30, as a reference. As the company just listed for one year and has high growth potential, my target price would be $30–$40. As an animal lover, I would be interested in trading in the stocks in this concept and will keep watching the stock.
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