Chewy's Disciplined Cost and Expanding Margin Could Lead to $53 Share Price

Introduction

Chewy, Inc. (NYSE: CHWY) is a leading online retailer of pet food and supplies. The company has been growing rapidly in recent years, and its stock price has reflected this growth. However, Chewy's stock price has come under pressure in recent months due to concerns about the company's profitability. In this article, we will take a closer look at Chewy's cost discipline and margin expansion, and we will assess whether these factors could lead to a $53 share price for the company.

Cost Discipline

Chewy has a long history of cost discipline. The company has been able to keep its costs low by focusing on efficiency and automation. For example, Chewy uses a proprietary technology platform to manage its inventory and fulfillment operations. This platform helps Chewy to reduce costs by optimizing its inventory levels and by reducing the time it takes to fulfill orders.

In addition, Chewy has a strong focus on customer service. The company believes that providing excellent customer service is essential to building a loyal customer base. Chewy's customer service team is available 24 hours a day, 7 days a week, and the company offers a wide range of support options, including live chat, email, and phone support.

Margin Expansion

Chewy's cost discipline has helped the company to achieve strong margin expansion in recent years. The company's gross margin has increased from 19.9% in 2016 to 25.6% in 2021. This margin expansion has been driven by a number of factors, including the company's focus on efficiency, its strong customer service, and its growing scale.

Chewy's scale has also helped the company to reduce its operating expenses. The company's fixed costs are spread over a larger revenue base, which has helped to reduce its operating margin. In addition, Chewy has been able to negotiate lower prices with its suppliers as its scale has increased.

Chewy is an e-commerce business. It sells and ships pet supplies to customers in the United States. Chewy generates revenues from this business through product sales. In 2022, the company generated $9 billion of revenue, up 14% year-over-year (YOY). The company's strong revenue growth and margin expansion in recent years have led to an increase in its profitability. Chewy's net income increased from $22 million in 2016 to $264 million in 2021.

Valuation

Chewy's stock is currently trading at around $40 per share. This implies a forward price-to-sales ratio of 2.1x. This valuation is in line with other e-commerce companies. For example, Amazon.com, Inc. (NASDAQ: AMZN) is trading at a forward price-to-sales ratio of 2.3x. Chewy's stock is also trading at a discount to its historical valuation. The stock has traded at a forward price-to-sales ratio of up to 3.5x in the past.

We believe that Chewy's cost discipline and margin expansion could lead to a $53 share price for the company. This implies a forward price-to-sales ratio of 2.8x, which is in line with Chewy's historical valuation and with the valuations of other e-commerce companies. We believe that Chewy's strong fundamentals and its long-term growth potential make the stock a good investment at current levels.

Risks

There are a number of risks that could prevent Chewy from achieving its $53 share price target. These risks include:

• Increased competition from other e-commerce companies
• A decline in consumer spending
• A recession

However, we believe that Chewy's strong fundamentals and its long-term growth potential outweigh these risks. We believe that Chewy is a well-positioned company to continue to grow its market share and to achieve its $53 share price target.

Conclusion

Chewy is a leading online retailer of pet food and supplies. The company has a long history of cost discipline and margin expansion. These factors have led to strong revenue growth and profitability for the company. We believe that Chewy's cost discipline and margin expansion could lead to a $53 share price for the company. We believe that Chewy's strong fundamentals and its long-term growth potential make the stock a good investment at current levels.