What happened
Shares of Chewy (CHWY +0.47%) jumped this week, surging 24% through Thursday trading compared to a 4.4% gain in the wider market. That rally didn't erase all of the pet supply giant's recent losses, though, and the stock remains lower by 36% in 2022, according to data provided by S&P Global Market Intelligence.
Chewy's move higher came as investors became less pessimistic about a recession developing over the next few months. Wall Street also sees some new reasons for optimism about the online retailer's short-term growth prospects.
So what
The key factor behind Chewy's rise this week was a report from a market research company saying that sales trends could be strengthening in the current quarter. The researcher's checks suggest that Q3 sales will exceed the $2.46 billion that most Wall Street pros are targeting for the stock.
NYSE: CHWY
Key Data Points
Chewy's most recent earnings report, back in late August, featured solid financial results paired with moderating growth.
The company is boosting profitability and gaining market share, but revenue rose just 13% in Q2 compared to 24% for the full 2021 fiscal year. Fears include an oncoming recession further pressuring sales trends.
Optimism that this slowdown may be ending sent the stock higher this week, but Chewy is still underperforming the market's 21% decline so far in 2022.
Now what
Investors shouldn't focus too much on Chewy's short-term revenue trends. Those moves tend to be volatile and hard to predict. Better metrics include market share trends, which are positive, and operating profit margin, which is rising.
Together, these factors imply that Chewy will generate solid returns for investors who simply hold the stock through any volatility. The business has room to expand its portfolio, too, given that over three-quarters of its customers are loyal enough to commit to its subscription-based service.
The stock seemed attractive before this week's market rally. Hints about a quick sales recovery simply add to the bullish thesis for Chewy's shares.
