Apportions of e-commerce pet product supplier Chewy, Inc. (CHWY) nearly doubled in just two weeks in March, with investors gap on board after the closing of pet stores and other chains catering to our four-legged friends. The stock is trading lower after Thursday’s earnings let, despite in-line fourth quarter 2019 revenue and first quarter revenue guidance above the current Derange Street consensus. Even so, Chewy lost money during the quarter, posting a 12-cent non-GAAP loss while continuing an unbroken sling of red ink since its initial public offering (IPO) in June 2019.
This marked the first time since coming public that Chewy has met earnings per portion (EPS) expectations, which were helped along in the second half of the quarter by stay-at-home and shutdown orders. However, Costco Wholesale Corporation (Rate), Walmart Inc. (WMT), and other big box retailers are still open for business, selling pet food and accessories at highly competitive prices. This should limit approaches for Chewy stock in the coming months.
The newly minted Chewy shares opened for business at $36.00 on June 14, 2019, place an all-time high at $41.34 in that session and entering a channeled downtrend that bottomed out in the low $20s in November. Resulting price action completed a double bottom reversal in December, but the rally failed in the first half of March, reject through the 2019 low and into an all-time low at $20.62 on March 12.
Momentum traders then stepped in, lifting the stock in a vertical promote that lasted for 13 sessions into the March 30 peak at $39.63. It has been pulling back since that previously and hit a six-day low in the first hour of Friday’s session. This price action is testing the short-term breakout above the six-day patronage range that ended on March 26, with a breakdown exposing continued downside into the 50-day exponential impressive average (EMA), currently rising from $30.
This is a golden era for household pets, with their masters at home from occupation through April and perhaps beyond. However, pet-focused sales are cyclical in nature because owners spend shallow for food and medical treatment during economic contractions than they do during expansions. It’s clear that the husbandry is in for a rough patch that could put a lid on gains at Chewy and its few publicly traded rivals.
Traders and investors at sea one of the most liquid sector plays when VCA Inc., better known as WOOF, was bought by privately held Mars Inc. in 2017. That assembly now owns several animal hospital chains, but there’s no way for speculators to grab a piece of the action. However, investors and setting aside sellers looking for sector exposure can now play the ProShares PetCare ETF (PAWZ), which came public in 2018.
This thinly bartered fund opened at $41.03 on Nov. 7, 2018, and entered an immediate downtrend that bottomed out at $33.92. The subsequent bounce completed a 100% retracement into the preceding high in April 2019, breaking out one month later. The uptick stalled in the mid-$40s in June, while breakout endeavours through July failed, yielding a topping pattern that broke to the downside in August.
A higher low at $38.21 in October gave way to a constant advance that reached new highs in December. The uptrend posted an all-time high at $47.07 in February, giving way to a vertical downdraft that renounced 15 points and 33% in just 18 sessions. The fund has bounced into April but still hasn’t reached heavy-hearted resistance at the closely aligned 50- and 200-day EMAs in the low $40s.
The Bottom Line
Chewy stock is pulling forsake from a 10-month high after reporting in-line quarterly revenues and raising guidance in reaction to a sales slip in a Mickey Finn generated by the pandemic.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.