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Why Chewy Stock Gained 12% in February While the Market Crashed

By Jeremy Bowman - Mar 6, 2020 at 1:11PM

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An analyst upgrade helped lift the online pet products seller last month.

What happened

Shares of Chewy (CHWY 7.36%) were demonstrating their resilience last month as the stock rose in spite of the broader sell-off on COVID-19 coronavirus concerns. The online pet products seller benefited from an analyst upgrade and its perception as a safe haven as investors sell stocks that are more at risk from the outbreak.

According to data from S&P Global Market Intelligence, Chewy shares finished February up nearly 12%. As you can see from the chart below, the stock was mostly steady while the rest of the market sank on the coronavirus scare.

CHWY Chart

CHWY data by YCharts.

So what

Chewy shares rose 4% on February 21 after the stock got upgraded by RBC Capital to outperform from market perform. Analyst Mark Mahaney left his price target at $38 but said that Chewy's profitability could hit an inflection point in 2020. He also credited the company's "strong sustainable fundamentals," including 25% annual revenue growth and expanding margins.

A dog against an orange background.

Image source: Chewy.

During the last week of February, Chewy fluctuated as investors seemed to momentarily view the stock as a sanctuary from the coronavirus-related issues affecting the broad market. As an online seller of pet food and products, Chewy seems to offer protection against coronavirus fears that have afflicted retailers and other businesses that function as gathering places. Additionally, it should be resistant to a potential recession, as pet products are among the most recession-proof industries. Americans need to feed their pets whether the economy is good or not.

Now what

Chewy stock has fallen about 5% through the first week of March on the ongoing volatility around the coronavirus as investors have bought some stocks that might have been oversold last week. Its status as a safe harbor might not be perfect, then, and like other retailers , Chewy could experience some supply chain issues. But if the virus keeps people at home and disrupts daily life, Chewy should fare better than most of the market, since its business is mostly impervious to those challenges.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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