Chewy: Favorable Investment Setup

Core Insights - Chewy reported better than expected earnings for Q2 FY 2024, with adjusted earnings of $0.24 per share on revenues of $2.86 billion, surpassing estimates [3][4] - The company has seen a significant increase in its valuation, with shares rising nearly 60% over the past year, yet it remains an attractive investment opportunity [1][8] - Chewy's customer spending increased by 6% year-over-year, averaging $565 per customer in Q2, contributing to top-line growth [5] Financial Performance - Chewy's Q2 FY 2024 results included a year-over-year increase of 65% in adjusted EBITDA, totaling $145 million, with an EBITDA margin of 5.1% [4] - The company generated $91 million in free cash flow in Q2, resulting in a free cash flow margin of 3% [6] - For the full year, Chewy projects revenues between $11.6 billion and $11.8 billion, indicating a growth rate of up to 6% [7] Valuation and Market Position - Chewy's current price-to-earnings ratio is 25.7X, which is still below its historical average of 57.1X, suggesting potential for further revaluation [8][9] - The company is trading at a 55% discount compared to its 3-year average P/E ratio, while competitors like Petco are priced significantly higher [9] - Chewy's growth strategy includes expanding into veterinary clinics, which could diversify revenue streams and enhance profitability [4][11]