The market punished this stock by 28%, yet the company is earning more than ever
A record quarter, margins at all‑time highs, cash up 45%. Yet the stock fell 28% over the year and trades 82% below its 2021 peak. Either the market is wrong, or those sparkling numbers are hiding something. The answer doesn’t lie in revenue but in a single line below the profit‑and‑loss statement and in the fact that management has quietly removed from the full‑year outlook the acceleration it was still counting on in the winter.
Key points
The company reported accounting net income of $94.8 million but adjusted net income of $179.9 million. Almost the entire difference comes from one item that nobody talks about out loud.
The stock is down 28% this year and still 82% below its 2021 peak, even though the company is reporting its highest profitability ever.
The Autoship subscription program accounts for 84.4% of revenue, but customer growth has slowed to just 3.6% and is trending toward the low end of the outlook.
The record first‑quarter margin of 7.5% won’t last. The second‑quarter outlook calls for a drop to 6.3%–6.4%.
The company’s tax rate is jumping from 16–18% to 24–26%, a permanent drag on accounting profit that adjusted numbers conceal.
Few situations on the stock market test an investor like a company that reports the best results in its history while its stock falls all year. That’s exactly what happened to Chewy $CHWY, the largest US online pet retailer. Revenue is rising, margins are expanding, cash is growing, yet the stock is down 28% this year and has lost more than four‑fifths of its value from the 2021 peak. At first glance, it makes no sense.
The explanation circulating in the market today is simple. The stock didn’t fall because the company is doing worse, but because it was absurdly overpriced last autumn, trading at roughly 119 times earnings. The drop is supposedly just a return to sanity, and anyone buying today is getting a quality company at a finally sensible price. A nice story, and there’s a grain of truth in it.
However, a closer look at the last quarter turns up something that hasn’t been front and centre. That record profit comes with several asterisks. Half of the reported profitability only appears if you strike one specific item from the books. The record first‑quarter margin will shrink again in the second quarter, according to the company’s own outlook. And management has just quietly removed from the full‑year plan the revenue acceleration it was counting on just a few months ago.