Argus Research analysts downgraded shares of Chewy (NYSE:CHWY), an online pet products retailer in which meme stock influencer Roaring Kitty has recently bought a stake.
The investment firm lowered its CHWY rating from Buy to Hold.
“While we like Chewy's long-term prospects, it continues to see declines in its active customer list amid weak economic conditions,” analysts said in their Market Digest report. “We also expect substantial investment spending as the company pursues its expansion into Canada.”
CHWY shares fell 2.2% in premarket trading.
The analysts highlight that Chewy faces increasing competition from both established players and new entrants in the pet products market, which could put further pressure on its growth and margins.
"Chewy has been facing increasing competition from both traditional retailers expanding their online presence and new entrants in the pet products market," the report noted. "This competitive pressure is likely to impact Chewy's market share and profitability."
Analysts also pointed out that CHWY shares have been outperforming over the past quarter, surging 48% compared to flat gains for the small-cap Russell 2000 index.
“Valuation based on P/E is meaningless given the company's history of losses,” they wrote.
“On other metrics, CHWY shares are trading at a premium on price/sales and EV/sales compared to a peer group. We expect trading volume and volatility to increase due to a shift in stock ownership.”
Stock influencer Keith Gill, known as "Roaring Kitty," revealed a surprising 6.6% stake in CHWY recently, causing a stir among executives at the U.S. pet products company. This investment marks Gill's first known venture beyond GameStop (NYSE:GME).
The connection between these two investments lies in Ryan Cohen, the billionaire founder of Chewy who is now the CEO of GameStop. Gill has previously expressed admiration for Cohen in his social media posts. Cohen founded Chewy and sold it in 2017.