Chewy nears 52-week low with 14x forward earnings ahead of Q1 report

Chewy reports fiscal first-quarter earnings on June 10 with adjusted EPS guidance of $0.40 to $0.45 per share, up 57 percent from the prior quarter.

"The sell-off created a buying opportunity at a dirt-cheap valuation," Dave Kovaleski, an analyst at The Motley Fool, said. "The five-year PEG ratio of 0.37 suggests the stock is undervalued relative to long-term earnings expectations."

The online pet retailer guided for net sales of $3.33 billion to $3.36 billion in the fiscal first quarter, up about 3 percent from the fourth quarter. Adjusted EPS of $0.40 to $0.45 compares with $0.27 in Q4. For the full fiscal year, Chewy targets $13.6 billion to $13.75 billion in net sales, a roughly 9 percent year-over-year increase that would accelerate from last year's 6 percent growth. Autoship sales, a recurring revenue metric, rose about 5 percent year over year to $2.7 billion in Q4, representing 84 percent of total sales, up from 80.6 percent a year earlier. Gross margin expanded 90 basis points to 29.4 percent.

The stock trades at 41 times trailing earnings and 14 times forward earnings, down from 95 times earnings last fall. The five-year PEG ratio of 0.37 — anything below 1 signals undervaluation — supports the bull case. Chewy also plans to acquire Modern Animal to expand its veterinary care platform, with details expected on the June 10 call. The stock has declined about 35 percent year to date and 55 percent over the past 12 months, hovering near $21.50 per share.

The guidance raise signals management expects growth to accelerate after a period of deceleration. Investors will watch the June 10 earnings call for updated segment margins and Modern Animal acquisition details.

This article is for informational purposes only and does not constitute investment advice.