Online pet supplies retailer Chewy (NYSE:CHWY) has been on a tear for the past year as its business became critical to many pet owners during the COVID-19 pandemic. Its stock has more than tripled in value over the past year, and in the first three weeks of 2021, it's up another 20%.

That's presenting a quandary for Wall Street as it seems divided on which way Chewy will go next. On Tuesday, UBS analyst Eric Sheridan downgraded Chewy from neutral to sell and kept his price target at $75 per share. But Needham analyst Rick Patel maintained his buy rating on the stock and raised Chewy's price target to $120 from $110 per share.

What's an investor to do?

Woman petting a dog

Image source: Getty Images.

Good arguments in both directions

Sheridan believes Chewy is benefiting from a market that's overly optimistic for stocks that enjoyed a boost to business from the coronavirus virus outbreak. He says the bullish thesis for the pet supply company's stock is "emblematic of a market that values growth over any semblance of valuation that can be justified" when looking at its fundamentals over multiple years.

Patel, though, contends that after speaking with Chewy's CFO, the company believes there are still plenty of blue skies for digital penetration for the pet category and Chewy's gross margin in particular should continue to have "structural tailwinds." He continues to see the pet supply e-commerce leader as his best stock pick for 2021.

In its third-quarter earnings report last month, Chewy said sales jumped 45% year over year while net losses shrunk to $33 million from $70 million. It also raised its fourth-quarter guidance to show similar sales growth and it now now expects to be profitable on a full-year adjusted EBITDA basis.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.