Chewy Inc. (NYSE:CHWY) is trending after releasing a mixed earnings report. The valuation of $23.49 is close to the 52-week bottom. The stock’s performance from this level will depend on how well the market understands the earnings report. We think you should buy the bottom.
Chewy announced Q1 earnings showing a decline in EPS from $0.09 to $0.04. Earnings are the best indicator of a company’s performance. Investors are therefore justified to be concerned about the decline in EPS. However, the current inflationary circumstances mean that the performance should be judged pragmatically.
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The company reported $2.43 billion in net sales. This was a significant growth from the $2.14 billion reported for a similar period in the last fiscal year. In fact, Chewy exceeded analyst expectations of $2.41 billion. If this performance is considered, then the stock should be viewed more positively.
Our analysis shows that the improved performance will reflect better from the second quarter. The company will have had more time to adjust the costs which are currently high due to inflation. The results show that Chewy was not able to transfer all the costs of inflation to end-users.
Chewy is at a bottom as RSI reads oversold
Chewy at a price of $23.49 is trading close to the 52-week bottom of $22.22. The RSI is at 31.42, meaning that the stock is about to trigger the oversold signal. We think that the stock could pivot from this valuation. The premarket valuation is already at $28.28 as at the time of this analysis. Target levels could be anywhere between $28 and $59.
Summary
Buying the bottom is recommended for Chewy. The company recorded improved fundamental performance despite the decline in EPS. The cost structure can be expected to improve going forward.
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