Chewy, Inc.'s (NYSE:CHWY) Has Found A Path To Profitability

We feel now is a pretty good time to analyse Chewy, Inc.'s (NYSE:CHWY) business as it appears the company may be on the cusp of a considerable accomplishment. Chewy, Inc., together with its subsidiaries, engages in the pure play e-commerce business in the United States. On 31 January 2021, the US$34b market-cap company posted a loss of US$92m for its most recent financial year. The most pressing concern for investors is Chewy's path to profitability – when will it breakeven? Below we will provide a high-level summary of the industry analysts’ expectations for the company.

See our latest analysis for Chewy

Chewy is bordering on breakeven, according to the 12 American Online Retail analysts. They expect the company to post a final loss in 2021, before turning a profit of US$6.7m in 2022. The company is therefore projected to breakeven around 12 months from now or less. We calculated the rate at which the company must grow to meet the consensus forecasts predicting breakeven within 12 months. It turns out an average annual growth rate of 70% is expected, which is extremely buoyant. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

We're not going to go through company-specific developments for Chewy given that this is a high-level summary, though, bear in mind that typically a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before we wrap up, there’s one issue worth mentioning. Chewy currently has negative equity on its balance sheet. Accounting methods used to deal with losses accumulated over time can cause this to occur. This is because liabilities are carried forward into the future until it cancels. Oftentimes, losses exist only on paper but other times, it can be a red flag.

Next Steps:

There are key fundamentals of Chewy which are not covered in this article, but we must stress again that this is merely a basic overview. For a more comprehensive look at Chewy, take a look at Chewy's company page on Simply Wall St. We've also compiled a list of relevant factors you should further examine:

1. Valuation: What is Chewy worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Chewy is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Chewy’s board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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