Chewy Inc. (CHWY) hasn't performed well for quite a while. Shares of the Plantation, Florida, pet supply retailer are up just a hair year to date and have lost about 70% of their value since early 2021.
Last week, Chewy was trading at an eight-month low when the stock finally received some good news. Chewy jumped when the company reported first-quarter results. Both revenue and earnings were above expectations and the company raised its full-year guidance.
Will Chewy be a good boy for investors? Let's go to the charts to find out.
Source of charts: TradeStation
Chewy gapped higher on June 1 (shaded yellow) as investors digested the company's latest earnings report. Turnover on the move was heavy, with Chewy having its biggest volume day in a year.
The stock is now above its 50-day moving average (blue) for the first time since February. However, Chewy is still trapped beneath its 200-day moving average (red).
The stock has heavy overhead resistance in the $50 area (green dotted line), making that price a logical target. Meanwhile, traders can exit with a small loss if Chewy drops below $29.49, its lowest closing price of the year.
An entry in the $35 area creates a favorable setup, with a potential gain of $15 per share on a move to $50. If Chewy rolls over, an exit in the $29 area would create a $6 loss. This set up has a favorable reward/risk ratio of just below 3:1.
Chewy competitor Petco Health and Wellness (WOOF) also reported earnings recently. Like Chewy, Petco has lost about 70% of its value since early 2021.
However, Petco received no bounce from its report. Rather, the stock fell on heavy volume and continued its downward trajectory in the days that followed. Petco is trading below its 50-day (blue) and 200-day (red) moving averages.
There's no question that shares of both Chewy and Petco got ahead of themselves during the pandemic. Consumers were suddenly in close proximity to their pets all day and used that opportunity to lavish their fur babies with attention and toys.
When considering these two names, what makes Chewy the top dog? One reason could be the company's potential for international expansion.
Chewy recently announced it would soon enter the Canadian market, with an initial focus on the Toronto area. This will be Chewy's first international venture, but it's unlikely to be the last.