BY BILL GRIFFO

September 9, 2023

Each week, I’ll give an overview of a stock and Licia Leslie will follow that up with a chart analysis the next day. Bill Griffo will chime in with macro analysis and Andrew Giovinazzi will then finish out the week with a volatility breakdown.

Have a stock YOU want us to review? Email my team here. – Mark

Hey Traders,

I have been a dog owner all of my life. I was never very creative with names – for instance, my first was a white husky collide (Snowflake), then a golden retriever (Muffin), and then a black lab (Coal). You get the picture!

Then I started getting two dogs at a time and had to get more creative, but also had to spend more money …

It was around 2012 when I saw an ad for Chewy Inc. (Ticker: CHWY), and I’ve been using it ever since.

As a stock picker, my view may be a bit different. And it certainly was when the stock was trading at $100 and even $50.

But here in the twenties, I think it is a buy …

CHWY had the confidence to go after Amazon head-on when they first entered the massive nearly $140 billion pet market. 

They clawed and scratched (pun intended) their way to a 20% market share and are on a steep growth trajectory. 

However, the most impressive data is the year over year growth on net sales per active customer (NSPAC), illustrated in the seeking alpha chart below. 

Their next big move is expansion into Canada, where Wells Fargo estimated its total addressable market could increase by $12-$15 billion.

So, yes the company has a monster PE ratio of nearly 200 but it also has a price to sales of under $1. That may be why Morningstar has its current price trading at an over 40% discount. 

Chart Pattern

The chart below illustrates a similar position that CHWY was in over a year ago.

Back in June 2022 CHWY had completed a bullish price/relative strength index (RSI) reversal pattern … 

This pattern developed when CHWY put in a low price and corresponding low RSI, then bounced and the price made a new low … 

However, this time, the RSI made a higher low, which signaled the bullish reversal as the price drop ran out of steam: 

Looks like a repeat of June ‘22 may be in process … plus, option positioning shows $22 as a string support area. 

These are excellent risk/reward trades because you’ll know pretty quickly whether the recovery is in process.

Buy in the $22 -$23 area with a target of $30, and stop yourself out a close below 21.5.

This is purely a swing trade based on technical and option position analysis. If their Canadian venture delivers then their bark may certainly be as big as its bite. 

Live and Trade With Passion My Friends,

Bill Griffo