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

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

Today we have an extremely 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 validity: 23% behind 16 Months; 48% behind 3 of the year; 99% behind 8 years.

Why stocks can go up: they have fallen heavily 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. We hope, Do 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 we write, are forecasts and hypotheses, not a call to action. To rely on our reflections or not – it's up to you.

And what is there with the author's forecasts

Research, like 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 show results better than people, but alas, they work worse.

So we're not trying to build complex models.. The profitability forecast in the article is the author's expectations. We specify this forecast for the landmark. As with the investment idea 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 won't 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 $. Think, that against the backdrop of such a strong fall, we can count on a rebound in shares.

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 $. Think, high probability, that now investors will run into the company's shares, confident in, 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 up Chewy already therefore.

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

There is room to move on. The company's shares have fallen this year due to a slowdown in revenue and audience growth.: counts, that the boom in sales of pet products the world owes 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 coronacrisis in the "pre-war" years.

In general, the market for pet products is not exactly huge., but still significant growth: on average about 6,1% in year. This is much more, than in the case of consumer goods for people, - so it's quite possible, that fans of “promising sectors” will fly into Chewy shares. The benefit of single people in developed countries is increasing, and pets for many of them are a way to brighten up loneliness.

And the pandemic is not in a 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 drive the world further away from the Normality Index. In the most developed OECD countries, the pandemic has led to an increase in rates of depression among the population at times - with what the population, maybe, will fight, spending money on pets.

So, in general, the long-term situation for the company is positive., let there be some pitfalls.

What can get in the way

Uneven. The company ended the last quarter with a loss.: the logistical crisis is to blame. So far, this attack has not disappeared anywhere., so you can be ready, that rising costs will affect the company's next report.

Accounting. Chewy is $2.129 billion in debt, of which 1.718 billion must be repaid during the year. However, she doesn't have much money at her disposal.: 726,9 million on accounts and 128.7 million debts of counterparties.

Considering, that the profit of the company is sometimes replaced by a loss, debt burden will grow, what will scare away some investors in the era, when everyone is waiting for a rise in rates and an increase in the cost of loans. Well, in itself, such a size of debts, taking into account the company's unstable profits, 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 wouldn't count too much, that someone will buy the company.

The outlook is not so clear. Considering the growing popularity of ESG investment in developed countries, as well as the dissemination 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 these 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 of the pandemic will take a new turn and because of suspicions that, that animals can transmit coronavirus, in developed countries, mass killing of pets will begin - by analogy with the mass killing of pets in the UK at the beginning of World War II or the recent mass destruction 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 the events in Ferguson, nothing foreshadowed that, what's the BLM move later 6 years will become the American political mainstream, - the same can happen with radical green, the most insane ideas of which may well become common practice in years 5.

What's the bottom line?

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

  1. wait 68 $. 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 you're not ready for it, that they will "shake".

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