Is Chewy Stock Still a Buy After a 96% Jump in Six Months?

Core Viewpoint - Chewy Inc. has seen a remarkable stock increase of 95.5% over the past six months, establishing itself as a leader in the pet-focused e-commerce market, driven by the demand for subscription-based pet products [1] Group 1: Stock Performance - Chewy's stock closed at $32.96, which is 15.7% below its 52-week high of $39.10 reached on June 27, 2024 [3] - The stock has significantly outperformed the industry, which rose by 14.5%, as well as the Retail-Wholesale sector and the S&P 500 index, which gained 14.7% and 14.4% respectively [1] Group 2: Growth Drivers - Chewy's growth is supported by strong financial performance, strategic investments, and favorable market trends, including an expanding customer base and a recurring revenue model [5] - The Autoship program has been a key contributor, with a 5.8% year-over-year sales increase in Q2 2024, accounting for 78.4% of total net sales [7] - The expansion into veterinary care has resulted in the opening of two additional clinics, increasing the total to six, which enhances customer loyalty and contributes to a record Net Sales Per Active Customer (NSPAC) of $565, reflecting a 6.2% year-over-year growth [8] - Chewy's Sponsored Ads business is on track to reach its long-term target of 1% to 3% of net sales by the end of 2024, driven by increased inventory and advertiser demand [9] - The mobile app improvements led to a 13% year-over-year increase in unique customers placing orders and a 15% rise in overall mobile app orders [10] Group 3: Challenges and Market Dynamics - Despite its growth, Chewy faces challenges such as slowing growth, potential customer acquisition saturation, and rising cost pressures [11] - The active customer count showed only a modest increase, with expectations for flat growth in 2024 [11] - Chewy operates in a price-sensitive market, where competitors can quickly adjust pricing strategies, and inflationary pressures could impact margins [12] - The forward 12-month price-to-earnings ratio for Chewy stands at 27.18, higher than the industry average of 25.36 and the S&P 500's 22.7, indicating potential overvaluation [13] Group 4: Strategic Initiatives - Chewy's strategic initiatives, including the Autoship program, veterinary clinic expansion, and mobile app enhancements, have strengthened customer loyalty and boosted recurring revenues [14] - However, high operational costs and competition from companies like Petco, Central Garden & Pet, and BARK pose ongoing challenges [15]