Read This Ahead of Chewy’s Quarterly Earnings Report

The equity has a history of moving lower after earnings

Deputy Editor
Aug 25, 2022 at 11:20 AM
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This commentary first appeared on Forbes Great Speculations, where Schaeffer's Investment Research is a regular contributor.

Chewy Inc (NYSE:CHWY) is slated to report second-quarter earnings after the market close on Tuesday, Aug. 30. Over the last two years, CHWY has had a negative history of post-earnings reactions, finishing six of these eight next-day sessions lower. However, it’s worth noting that following its June report, Chewy stock added 24.2%. This time around, options traders are pricing in a 17.8% post-earnings swing for the shares, which is larger than the 10.4% move the security averaged after its last eight reports, regardless of direction.

Citigroup yesterday raised Chewy stock’s price target to $44 from $29. The sentiment amongst covering brokerages is mixed, with nine saying “buy” or better, versus seven that recommend a tepid “hold.” Meanwhile, the consensus 12-month price target of $45.62 is a 12.1% premium to the equity’s current levels.

It’s worth noting that short interest increased 12% in the last two weeks, and these bearish bets now represent a hefty 25.6% of the stock's available float. This represents nearly four days of pent-up buying power, at the security's average pace of trading.

Options traders are planted firmly in the bearish camp as well. This is per CHWY’s Schaeffer’s put/call open interest ratio (SOIR) of 2.08, which stands higher than 94% of annual readings. Echoing this, the equity’s 50-day put/call volume ratio of 1.48 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) ranks higher than all readings from the past year. This indicates these bearish bets are being picked up at a quicker-than-usual clip.

Chewy stock is underperforming on the charts, down 55.8% year-over-year. In addition, the equity is off nearly 31% in 2022, with the shares following up a failed rally to the $52 level with a dip back below the 40-day moving average – a trendline that captured a notable late-July pullback.

 

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