Chewy Inc (CHWY, Financial) has recently experienced a notable decline, with a daily loss of -10.26% and a 3-month drop of -36.47%. Despite these setbacks and an Earnings Per Share (EPS) of just $0.09, a pressing question arises: is Chewy significantly undervalued? This article aims to delve into Chewy's current valuation, encouraging readers to explore the following in-depth analysis.
Company Introduction
Chewy Inc (CHWY, Financial) stands as the largest e-commerce pet care retailer in the U.S., boasting $10.1 billion in 2022 sales. Founded in 2011 and later acquired by PetSmart in 2017, Chewy made its public debut in 2019. The company thrives on a diverse range of products, from pet food and treats to pharmacy items. Comparing Chewy's stock price with the GF Value, an estimated fair value, offers an insightful perspective on the company's intrinsic worth.
Summarize GF Value
The GF Value is a proprietary measure that reflects Chewy's intrinsic value, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock trades significantly below the GF Value Line, it suggests potential for higher future returns, indicating undervaluation. Chewy (CHWY, Financial), with a share price of $15.92, appears to be significantly undervalued according to the GF Value, which is set at $50.12. This discrepancy suggests a promising outlook for long-term returns on the stock, outpacing its business growth.
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Financial Strength
Investors must consider a company's financial strength to avoid the risk of permanent capital loss. Chewy's cash-to-debt ratio stands at 2.15, ranking above 76.77% of peers in the Retail - Cyclical industry, suggesting a fair level of financial robustness. The company's overall financial strength is rated 7 out of 10.
Profitability and Growth
Chewy's profitability, as indicated by a 2 out of 10 ranking, has been inconsistent, with an operating margin of -0.21%, placing it below 70.19% of its industry counterparts. However, the company's growth prospects are brighter, with a 3-year average annual revenue growth rate of 13.7%, surpassing 86.6% of the Retail - Cyclical industry.
ROIC vs WACC
Comparing Chewy's Return on Invested Capital (ROIC) of -1.87 to its Weighted Average Cost of Capital (WACC) of 11.64 reveals a challenge in generating adequate cash flow relative to invested capital. This is a critical aspect to consider when assessing the company's profitability and potential for value creation.
Conclusion
In conclusion, Chewy (CHWY, Financial) appears significantly undervalued when considering its fair market value. With fair financial health and poor profitability, the company's growth outpaces a significant number of competitors within the Retail - Cyclical industry. For a more detailed financial overview of Chewy, interested investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
