The past earnings season has been tough for many “stay at home” stocks that benefitted in 2020 from the pandemic. The biggest issue is that these companies are still growing, but their rate of growth has slowed substantially.
Over time, it’s likely many of these companies will recover from the market fears. One company that just faced an earnings selloff, has more to it than being a “stay at home” play.
The company is Chewy (CHWY). Shares faced a drop on Thursday following the company’s latest earnings, as sales came in just under analyst expectations and the firm reported a small net loss.
Shares certainly look expensive, with the company trading at 900 times forward earnings. Shares were already barely up for the year before the latest earnings numbers dropped.
While that looks negative now, the company’s earnings are up 32 percent over the past year. And the online retailer has been growing market share in online pet sales. Given the longer-term trends of spending on pets, this is a company that has more to it than being a “stay at home play.”
Action to take: Shares are a potential buy here. While expensive, the company can likely grow into its valuation over time, much like how investors in other online retailers have paid a high conventional valuation for a growing firm.
For traders, shares are likely to rebound. The January $80 calls, which last went for around $6.00, can potentially see mid-to-high double-digit returns in the coming months as shares shake off the latest earnings report.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.