Chewy (CHWY) short, mcap=$15bn, price $35.47 vs $42.30

CHWY short pitch:
– Chewy is an obvious COVID beneficiary but the market and street have been lulled into a false sense of security.
– Too expensive for low-growth businesses.
– Volumes are already at LSD – but growth was boosted by inflationary pricing.
– The market for online pet consumables is likely to be close to full penetration.
– The margin profile of this business is structurally capped by Amazon.
– The Consumables category is dominated by a small number of brands with significant loyalty, allowing customers to easily shop around and price compare.

CHWY valuation:
– Trades at 1.7x fwd revenue.
– At a 3% norm EBIT margin, that’s 70x normalized NOPAT for a business that is set to grow MSD next year.

Exp. gain: 50%+

Full write-up (free guest account required):