Chewy Stock Up 37% YTD: What's the Best Move for Investors Now?

Core Viewpoint - Chewy Inc. (CHWY) has experienced a significant year-to-date stock increase of 36.5%, raising questions about its future growth potential and whether investors should take profits or hold [1]. Group 1: Stock Performance - Chewy's stock has underperformed compared to the industry, which has risen 42.3%, but has outperformed the Retail-Wholesale sector and the S&P 500 index, which gained 32.4% and 27.7% respectively [2]. - As of last Friday, Chewy's stock closed at $32.26, which is 17.5% below its 52-week high of $39.10 reached on June 27, 2024 [5]. Group 2: Business Growth Drivers - Chewy has established itself as a leader in the online pet retail industry, with a growing customer base and a recurring revenue model. The company anticipates fiscal 2024 net sales between $11.79 billion and $11.81 billion, indicating approximately 6% year-over-year growth [9]. - The Autoship program is a significant revenue driver, accounting for 80% of third-quarter fiscal 2024 net sales, with customer sales growing 8.7% to $2.3 billion [10]. - Chewy added 160,000 active customers in the third quarter, reaching a total of 20.2 million, with Net Sales Per Active Customer (NSPAC) growing 4.2% year-over-year to $567 [11]. - The company's expansion into veterinary services through Chewy Vet Care targets a $25 billion market, with six vet clinics operational and plans to meet its target of 4-8 clinics for fiscal 2024 [12]. - Chewy's Sponsored Ads business is expected to reach 1% to 3% of net sales by the end of 2024, enhancing profitability [13]. Group 3: Challenges and Risks - Potential challenges include slowing growth, customer acquisition saturation, and rising cost pressures, which could impact stock momentum [14]. - The adjusted EBITDA margin expanded to 4.8% in the third quarter, but fourth-quarter guidance suggests a decline to 3.4% due to increased seasonal marketing costs [15]. - Chewy operates in a price-sensitive market, facing competition from companies like Petco and Central Garden & Pet, which may affect pricing strategies and margins due to inflationary pressures [16]. - Advertising and marketing expenses reached $191.8 million, or 6.7% of sales, in the third quarter, with projections for the full year at the high end of the 6% to 7% range, potentially straining profitability if revenue growth does not accelerate [17]. Group 4: Earnings Estimates - The Zacks Consensus Estimate for earnings per share has seen downward revisions, with estimates lowered by 3 cents to 20 cents for the final quarter and by 7 cents to $1.08 for fiscal 2024 [18].