Is Chewy’s (CHWY) Margin Story Losing Steam, or Is a 48% Drop the Opportunity? Venkatesh Srinivasalu Sun, September 13, 2026 at 12:57 PM PDT 3 min read CHWY Chewy, Inc. (NYSE: CHWY ) reported second-quarter results on September 9, 2026. The results highlighted a 7.3% increase in net sales to $3.33 billion, adjusted EPS of $0.36, and a raised full-year outlook. However, following the results, Evercore ISI downgraded Chewy to In Line while RBC and TD Cowen cut price targets. The stock, already down about 48% from its 52-week high and near its low, fell roughly 10% intraday before bouncing. This raises multiple questions: is Chewy's slowdown cyclical or structural, and does this drop make the 35x stock a clear buy? (READY TO REVIEW) Is Chewy's (CHWY) Margin Story Losing Steam, or Is a 48% Drop the Opportunity? The Bull Case Is Real, but Thinner Than It Looks Chewy's Autoship subscriptions give the company recurring revenue that most retailers cannot copy. Active customers rose to 21.7 million, up 3.8%, and management also raised its full-year outlook. AI is expected to deliver approximately $50 million of annualized savings in fiscal 2027. From a distance, these numbers indicate a growing sector leader currently trading near multi-year lows. But the problems reveal themselves at a closer look. Organic revenue growth, excluding M&A, slowed to 5.7%, and the 6.8% adjusted EBITDA margin benefited from tariff refunds, rebate timing and other discrete items that management said accounted for essentially all of the quarter's adjusted EBITDA outperformance versus expectations. The margin story cited by the bulls in this quarter was partly manufactured. The Bear Case: Deceleration Meets a Premium Multiple According to Evercore ISI, the quarterly report delivered only a minimal beat-and-raise, leaving the stock in need of an obvious growth catalyst to outperform, with none on the horizon. The structural fear is Amazon and Walmart pressuring a maturing pet-e-commerce category, limiting Chewy's pricing power as well as margins permanently. Chewy has been consistently capturing the category share from Amazon for years, making the ceiling a risk factor rather than a proven fact. Even so, trading at 35x earnings with mid-single-digit growth, the price offers little cushion if the fear turns real. Analysis Positioning remains moderate on the stock. As per our Insider Monkey database, 44 hedge funds hold CHWY in the second quarter of 2026, down sharply from 53 in the first quarter. Chewy, Inc. (NYSE:CHWY) is a good business. But the question is whether a leader decelerating to 5.7%, after a margin beat boosted by non-recurring items, deserves 35x. Without a clear growth catalyst, a rebound appears unlikely, which explains Evercore's decision to downgrade the stock. The recent drop is a bargain only if the current deceleration proves cyclical. Wait for the upcoming quarterly reports. See if there is any real organic reacceleration toward high-single digits and margin expansion. At that point, a beaten-down price can be an opportunity. Another quarter would mean the stock is cheap for a reason. Story Continues While we...
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