To make a proper investment decision, you should try to forecast a company's stock price. You'll need to project certain items, like sales, and the corresponding price-to-sales (P/S) ratio.
That sounds simple, but it's challenging to predict how a company will perform five years from now. Still, it's a necessity for long-term investors. Of course, you're not bound by those forecasts. You can, and should, update them as new information (e.g., quarterly results) comes in.
Chewy's (CHWY +5.15%) stock price has had a wild ride. In early 2021, the shares reached an all-time high of nearly $120. They currently sell at more than 80% below that price. Where will the share price reach in five years?
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Sales growth
It's useful to look at historical sales and earnings growth. During the early days of the pandemic, Chewy's sales soared as many people adopted pets and used the company's online platform to order pet products.
Fiscal 2022 sales reached $10.1 billion, up more than 41% from $7.1 billion in 2020. Chewy also reported a profit under generally accepted accounting principles (GAAP) of $0.12 per diluted share, compared to a $0.23 per diluted share loss in 2020. The 2022 fiscal year ended on Jan. 29, 2023.
However, that sales pace proved unsustainable. More recent periods seem more reflective of Chewy's growth rate. Last year's sales grew 8.3% based on the same number of weeks in both years.
NYSE: CHWY
Key Data Points
Management has done a nice job driving sales from autoship customers (83.3% of 2025 sales, up from 79.2%) and from active customers (those who order a product or service at least once in the past year), which grew 4% to 21.3 million.
It has a high-single-digit to low-double-digit sales growth goal. Chewy ended 2026 with $12.6 billion in sales, or $29.59 a share. Using an 8% growth rate, that figure will increase to $43.48 at the end of five years.
It's more challenging to calculate future diluted earnings per share due to volatility. For instance, the 2025 figure fell from $0.91 to $0.52, but the decrease was largely due to higher income tax expenses. Therefore, I think it's better to use sales when making the price projection.
Future valuation
Chewy's P/S ratio is 0.7, below the five-year median of 1.3 times. This might seem like a prime value stock, but you need to take the next step and figure out the projected price by applying a multiple to anticipated sales.
Assuming a P/S multiple of 1, the shares would trade at $43.48. That's about double the current share price, making this a potentially attractive buying opportunity. Hence, should the company meet the lower end of management's sales growth goal, the stock seems like a bargain for long-term investors.
Of course, you should be aware of what will happen if growth slows materially. Should Chewy increase sales by only 4% and the multiple stays at 0.7, that equates to a stock price of $25.20. That represents only a 17% gain over five years.
