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The investment bank said it is getting more positive on Chewy and believes the current share price now largely reflects the potential near-term challenges.
“While we believe there are still legitimate questions about CHWY’s LT earnings power, we see limited potential downside for at least the short run given the stock is trading at 0.6x EV/sales, well below its 2.3x historical avg,” wrote analysts at UBS.
Moreover, CHWY has demonstrated a consistent trend of positive EBITDA growth since 1Q’22,” they added. “Also, the company’s recent move into Canada offers the potential to expand its customer base over the long run. Google Trends data shows that search activity has recently picked up in Canada.”
The analysts also noted that Chewy has already tapped into a significant portion of the domestic pet specialty profit pool, “meaning incremental gains will likely be harder to harvest.”
