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Time to take a bite out of Chewy

July 18, 2022

This is another two out of three buy signal with a golden cross on the moving averages and a broken downtrend line. The Coppock indicator is flattening out after declining since May 2021. Because Chewy only floated in June 2019 there are no calculations for the indicator before May 2021 so all it has ever done is fall. If the flattening out is followed by a buy signal that will be the first ever Coppock buy signal for Chewy. My best guess is that it is going to happen and that Chewy shares will then be in a confirmed bull trend. The next thing we need to look at is how the fundamentals match up with that chart picture.

Chewy is a substantial enterprise. It had sales of $8.9bn in 2021 and is projected to make substantial profits for the year to 31 January 2025. The shares are much better value now than they were 18 months ago. Part of the reason for the recent sharp rise is that as recently as May 2022 the short interest was a massive 25pc of the shares outstanding.

The whole Chewy thing is a bit cringe-making for old timers like me with its talk of pet parents. I like dogs as much as the next guy but pet parents, pass the sick bag. Whatever, it seems there are plenty of Americans who lap it up and something seems to have changed in the whole relationship between humans and pets in the 21st century. Pets cost a fortune and the cost of feeding and looking after them has risen pro-rata, which means that Chewy is playing in a large market.

At its simplest Chewy is Amazon for pets and has been growing strongly in recent years and strong growth is projected to continue. The company is moving into areas like loyalty programmes, own label, ads and healthcare to drive growth in future. It’s a competitive field but it always is in North America. Chewy has done well so far and it is riding some strong trends like e-commerce and the humanisation of pets.

I have grown up with the idea that dogs are members of the family so in that respect I am not surprised that the latest step in the process of domestication of many animals is that they are becoming full-on family members, loved as much and costing as much. I just don’t like being called a pet parent even if that is what I was and what my parents were to their dogs (I don’t have a dog presently although my eldest daughter is pressing hard).

Chewy is playing with the big boys with Amazon and Wal-Mart both major competitors. It seems to be the innovation leader with the others playing catch-up.

A share price chart like the one above doesn’t tell you anything about what is going to happen in the short term. It just tells us one thing. These shares have most likely bottomed out and begun a new bull phase.

Chewy. CHWY. Buy @ $44.50

Strategy

Something I am starting to think about is the Holy Grail idea of a sure thing investment. This may be more like seizing a moment, waiting until every thing is rising in bullish pattern and aiming to hold the shares while those conditions remain in place. Ideally an important something new would be happening to drive growth and the best period for making money is while the shares are making new highs because then there are no stale bull sellers to impede progress. It is hard to find shares like that at the moment but they will come.

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