Chewy (NASDAQ: CHWY) Stock Forming the Next Leg Melt Up

Online pet products and services platform Chewy, Inc. (NASDAQ: CHWY) shares have proven it to be a pandemic benefactor through the COVID-19 isolation mandates. Share have outperformed the S&P 500 index (NYSEARCA: SPY) surpassing its pre-pandemic highs in February 2020. Chewy warrants a look into the operating model that goes beyond a simple pet food and supply delivery company. The Company provides simplicity and convenience through a touch-free model that caters seamlessly to stay-at-home mandates. However, the stickiness of its model ensures the acceleration it gained during the pandemic should continue to flow during restart and post-COVID-19 scenarios. Shares have been basing at the higher range above prior resistance levels. A repeat of the sell-the-news reaction despite a beat and raise could materialize again. Investors may want to consider opportunistic pullback entries for the next leg up ahead of its next earnings release on Sept. 8, 2020.

Q1 Fiscal 2021 Earnings Release

Chewy released its Q1 2021 earnings ending April 2020, on June 9, 2020. The Company beat estimates by $0.05 per share with a loss of (-$0.12) versus (-$0.17) consensus analyst estimates. Revenues climbed a whopping 41.7% year-over-year (YoY) to $1.62 billion beating consensus estimates of $1.53 billion. The bread-and-butter Autoship customer sales grew 48% YoY to $1.10 billion. Chewy raised upside guidance for Q2 2020 revenues to $1.62 billion to $1.64 billion versus $1.55 billion consensus analyst estimates and FY2021 revenues to $6.55 billion to $6.65 billion versus the $6.41 billion analyst estimates. The Company clearly proved to be a winner in the pandemic and is one of the few companies that didn’t shy away from providing forward guidance. What did the market do? Shares sold off on a sell-the-news narrative template constantly repeated by pandemic stock winners. Some examples include Netflix (NASDAQ: NFLX) , Slack Technologies (NASDAQ: WORK) , Take-Two Interactive (NASDAQ: TTWO) , Zoom Video (NYSE: ZM) , Crowd Strike (NASDAQ: CRWD) and the list goes on and on.

Chewy Post-Pandemic Sticky-ness

The COVID-19 pandemic has caused various winners to materialize form the unexpected demand spike whether due to stay-at-home mandates or stockpiling. The question remains which of these pandemic winners will continue to remain “sticky” as customers continue to maintain and even accelerate engagement during the restart narrative. Some stocks hit a “best it gets” reaction since the pandemic was a one-time front-loaded event, while other stocks managed to grow their base of customers to take advantage of the network effect and continue to broaden their base as well as accelerate sales and engagement even after life returns to “normal”. The “win” is when customers select the Autoship option that is a “set it and forget it” plan. The pandemic introduced new customers to the platform to get acclimated to the quality and convenience of the service. Converting them to Autoship locks them in moving forward into the restart and post-pandemic territory. This simple strategy is why Chewy is a dual pandemic and a restart winner. Competitor Petmed Express (NASDAQ: PETS) is a sympathy play with focus on pet medical supplies.

CHWY Trajectories and Pullbacks

Using the rifle charts on a monthly, weekly, and daily time frame provides a broader view of the landscape for CHWY stock. The weekly rifle chart triggered a  market structure low (MSL) above $35.54 Fibonacci (fib) level. Shares spent multiple weeks trying to break out through the $42.57 fib to eventually trigger a bullish pup breakout to peak the $52.45 into earnings. This triggered the daily to form a bearish mini inverse pup pullback down through the 80-band  before coiled off the $46.10 fib to stall out into a daily make or break pattern. This means either the daily stochastic will cross up to trigger a bullish daily pup breakout to join the weekly pup breakout for upside towards the $58.56 fib or a mini inverse pup forms crossing the daily 5-pd MA down through the 15-period MA for a retest of the $42.52 gatekeeper fib. If the daily mini inverse pup forms, then opportunistic pullback entry levels are at the $47.51 fib, $46.34 gatekeeper fib and $39.63 fib. The next Q2 Fiscal 2021 earnings are scheduled for Sept. 8, 2020, after the close. The bar is set high for the earnings result so be aware of a sell-the-news reaction and consider scaling out profits into the run-up before the release. Keep in mind if there is a second wave of COVID-19, CHWY stock should benefit since it’s a dual pandemic play and restart play.