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Why Shares of Chewy Rose 54.1% in the First Half of 2020

By Billy Duberstein – Jul 7, 2020 at 6:18PM

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The pet food e-commerce player is ideally suited for a pandemic.

What happened

Shares of pet food e-commerce company Chewy (CHWY 3.90%) rocketed 54.1% during the first half of 2020, according to data from S&P Global Market Intelligence. The company greatly benefited from pet owners being unable or unwilling to go out to pet stores amid the COVID-19 pandemic. Meanwhile, their furry friends still needed to eat, and Chewy benefited handsomely.

A dog looks at his owner's laptop.

Image source: Getty Images.

So what

During the quarter ended May 3, Chewy reported red-hot growth numbers, with revenue up 46%, an acceleration over the prior quarter's 35% growth. Gross margins of 23.4% expanded by 50 basis points over the year-ago quarter, and adjusted EBITDA turned positive.

Accelerating growth and expanding margins are usually a recipe for success, so it's no surprise that Chewy's stock rose by leaps and bounds during the first half of the year. With the virus still around and rising in certain states, investors seem to be betting Chewy's new customers may stick around for the long haul.

Now what

Chewy looks to be a formidable combination of a recession-resistant stock and a growth stock all in one, and it still trades at a reasonable valuation of 3.5 times sales. J.P. Morgan analyst Doug Anmuth thinks the good times can keep going for Chewy, as the company is innovating with new products and services, and pet food e-commerce penetration is only 22%. As such, look for Chewy to continue its strong performance in the months and years ahead.

Billy Duberstein owns shares of JPMorgan Chase. His clients may own shares of the companies mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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Chewy, Inc. Stock Quote
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