$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.
– 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%+
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