Why Chewy Stock Soared Higher This Week

Actions of chew (CHWY 2.31%) gained this week after several Wall Street analysts issued bullish notes on pet-centric e-commerce stocks.

The round of favorable analyst attention comes after the company delivered a better-than-expected second-quarter earnings report last week. The news helped push shares up 16.6% at Thursday’s close, according to data from S&P Global Market Intelligence.

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The chewed stock looked up again

Chewy, and the pet sector in general, has seen a massive downturn following the pandemic-driven boom in pet adoptions.

However, it’s starting to look like those headwinds are finally dissipating, and at the same time, the company has learned how to operate a more efficient business. Investors responded well to its earnings report last week, even though revenue growth was still slow but profits were up.

Several Wall Street analysts jumped on the rallying stock bandwagon this week. Goldman Sachs reiterated a buy rating on the stock and a $35 price target after the company’s presentation on Monday at its Communications and Technology Conference. Goldman said recent improvements in active client trends are due to internal initiatives that should begin to drive an acceleration in revenue growth.

The previous Friday Morgan Stanley said he saw an increased likelihood of Chewy’s stock doubling due to improving profit margins and Barclays He also said he was more bullish on the stock after the management meeting, saying improving revenue growth, continued margin expansion and buybacks should drive the stock higher.

Is Chewy a buy?

Rival Petco has also risen over the past two days as the company introduced a turnaround plan, showing that downed pet stocks are beginning to recover from the slump they experienced after the peak of the pandemic.

Revenue rose just 2.6% in the second quarter, although adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) rose 155%.

Chewy will need to accelerate earnings for the stock to continue rising. I’d like to see that happen before I call the stock a buy.