Investidea: Chewy, because it's time to feed the animals

Инвестидея: Chewy, потому что пора покормить животных

Today we have a highly speculative idea: take promotions of the online store of goods for animals Chewy (NYSE: ALL), in order to make money on their rebound after a strong drop.

Growth potential and duration: 23% for 16 months; 48% for 3 of the year; 99% for 8 years.

Why stocks can go up: they fell hard and there is potential for them to rebound.

How do we act: take now 55,26 $.

When creating the material, sources were used, inaccessible to users from the Russian Federation. Hopefully, you know, what to do.

No guarantees

Our reflections are based on the analysis of the company's business and the personal experience of our investors, but remember: not a fact, that the investment idea will work like this, as we expect. Everything, what are we writing, Are forecasts and hypotheses, not a call to action. It is up to you to rely on our thoughts or not..

And what about the author's predictions

Research, for example this and this, talk about, that the accuracy of target price predictions is low. And that's ok: there are always too many surprises on the stock exchange and accurate forecasts are rarely realized. If the situation were reversed, then funds based on computer algorithms would perform better than people, but alas, they work worse.

Therefore, we do not try to build complex models.. The profit forecast in the article is the author's expectations. We indicate this forecast as a guideline. As with the investment in general, readers decide for themselves, it is worth trusting the author and focusing on the forecast or not.

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What the company makes money on

This is an online pet store. We have already published a detailed analysis of the company's business, so we will not repeat ourselves here.

Arguments in favor of the company

Fell down. This year, the company's shares have fallen in price by half - from an all-time high 110 $ in February to 55 $. I think, that against the background of such a strong fall, we can count on a rebound in stocks.

There are successes. The company looks much better now, than a year ago: and revenue, and business margins have grown significantly. At the same time, the company is cheaper., than a year ago: then her shares were worth almost 100 $. I think, high probability, that now investors will run into the company's shares, confident, that now it costs less, what it should have cost. Plus, online orientation will help: many investors are praying for online retail, because it is "promising", and can pump Chewy for this reason.

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Инвестидея: Chewy, потому что пора покормить животных

There is room to move on. The company's shares fell this year due to a slowdown in revenue and audience growth: counts, that the boom in sales of pet products is due to the pandemic and as, how the economy will open up, demand will fall. There is some truth in this: some have adopted animals due to quarantine, - but in general, Chewy's financial performance grew bravely even without the coronavirus crisis in the "pre-war" years.

In general, the market for pet products is not that huge, but still noticeable growth rates: on average about 6,1% in year. This is much more, than in the case of consumer goods for humans, - so it is quite possible, that fans of "promising sectors" will swoop in on Chewy shares. Fortunately, there are more and more lonely people in developed countries., and pets for many of them are a way to brighten up loneliness.

And the pandemic is in no hurry to end: seems to be, the world is waiting for more than one quarantine. So it is quite possible to expect sales growth for the company in the coming year., as new strains move the world further away from the Normal Index. In the most developed countries of the OECD, the pandemic has led to an increase in the rates of depression among the population at times - with which the population, possibly, will fight, spending money on pets.

So, in general, the long-term business environment is positive for the company., let there be pitfalls here.

What can get in the way

Uneven. The company finished the last quarter with a loss: the logistics crisis is to blame. So far this attack has not disappeared anywhere, so you can be prepared for, that the increase in costs will affect the next report of the company.

Accounting. Chewy has $ 2.129 billion in debt, of which 1.718 billion needs to be repaid within a year. At the same time, she does not have a lot of money at her disposal.: 726,9 mln in accounts and 128.7 mln of counterparties' debts.

Considering, that the company's profit is sometimes replaced by a loss, debt burden will grow, which will scare away some investors in the era, when everyone is waiting for a raise in rates and a rise in the cost of loans. Well, in itself, such a size of debts, taking into account the unstable profits of the company, in the future can lead to bankruptcy..

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Price. Company P / E — 2620, which actually guarantees the volatility of its shares. Considering this and its capitalization of $ 23 billion, I would not count too much, that someone will buy the company.

Prospects are not so clear. Considering the growing popularity of ESG investing in developed countries, and the spread of radical environmental ideas, there is some possibility, that the number of pet owners will decrease in the future, and with it the consumption of the corresponding goods.

Pets and the production of goods for them generate a lot of carbon dioxide emissions - so there is a possibility, that the increasingly influential greens in developed countries will promote the idea of ​​reducing the consumption of relevant goods. And maybe, even the number of pets themselves, introducing taxes and special permits for the establishment of animals, like in Singapore.

It is also very likely, that the story with the pandemic will take a new turn and due to suspicions that, that animals can transmit coronavirus, in developed countries, the mass murder of pets will begin - by analogy with the mass murder of pets in Great Britain at the beginning of World War II or the recent mass extermination of minks in Denmark.

This risk must be taken into account.: such «black Swan» cuts and business, and Chewy quotes. Finally, back in 2014, in the context of events in Ferguson, nothing boded, what's the BLM move later 6 years will become the American political mainstream, - the same can happen with radical greens, the most insane ideas of which may well become common practice in years 5.

What is the bottom line

Shares can be taken now by 55,26 $. And then there are options:

  1. wait 68 $. I think, we will reach this level in the next 16 months;
  2. wait 82 $. Here you should count on 3 of the year;
  3. wait, when the company turns into Amazon from the world of pet products and will again reach the level 110 $. Here you should prepare to wait 8 years.

But in any case, this idea is very volatile - so do not touch these stocks., if not ready for that, that they will be "shaken".

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