Why Chewy Stock rose 12% in October

What happened

Shares of a pet-goods e-commerce company soft (NYSE: CHWY) rose 12.3% in October, according to data provided by S&P Global Market Intelligenceunlike the S&P 500 index which fell by almost 3%. The action gained ground steadily throughout the month before receiving a disproportionate boost late after announcing a new pet telehealth service on October 28. However, she later returned some of her earnings, possibly due to uncertainty over the company’s relationship with PetSmart.

So what

The COVID-19 pandemic has resulted in many of the retail sales physical stores and e-commerce channels, and outright online sellers like Chewy have benefited. Investors have naturally taken note of the trend. But the company attracted even more bulls after announcing it would roll out its Connect with a veterinarian program across the country. While it’s only available to customers enrolled in Chewy’s Autoship program, the telehealth service is free and addresses one of the challenges presented by physical distancing guidelines. Investors responded by sending the title higher.

Image source: Getty Images.

However, on October 30, reports revealed that PetSmart was not following through on a previously scheduled $ 4.65 billion debt sale. The deal was designed to support PetSmart’s complete separation from Chewy, but market conditions are not cooperating. In other words, PetSmart hadn’t attracted enough buyers of its junk bonds to make it work. Chew stocks fell after the news broke.

Now what

In Chewy’s 2019 annual report, there was an entire section detailing eight risk factors related to its relationship with PetSmart. Even though Chewy operates independently, PetSmart is still technically its parent company and controls most of the voting rights. For retail investors in Chewy, it would be a good thing for these two companies to go their separate ways. At this point, it’s unclear when this will happen.

That said, PetSmart’s significant participation does not detract from Chewy’s true successes in 2020. The company has gained a significant number of new customers during the COVID-19 pandemic and many of them are likely to continue to patronize it. long-term. For now, management must continue to focus on increasing the efficiency of its operations and making it a profitable business.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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