Investors typically benefit from understanding their current position in the stock market cycle, as identifying the right mindset and sentiment can lead them to the winning stocks in the market for the upcoming months and quarters. There are generally two main cycles when markets are boiled down to their essence, and it appears that today’s cycle is very clearly at one of these extremes.
[content-module:CompanyOverview|NYSE:CHWY]The first phase of the cycle is typically sparked by easing monetary policy, such as low interest rates and the Federal Reserve printing and injecting more money into the system. This excess capital drives into some of the more speculative growth stocks in the market, as seen in the technology sector over the past couple of years, particularly in the semiconductor and chipmaking industry.
However, today’s cycle has swung all the way to the other end of the spectrum, considering that bond yields and interest rates have both increased to make capital more expensive. As a result, more investors are now looking into the safer “value” stocks in the market. This is where a stock like Chewy Inc. (NYSE: CHWY) comes into play, not only due to its underlying industry but also because of its current business model, which is focused on stability and predictability.
Confirmation for Chewy’s Upside
With the introduction of trade tariff volatility into the S&P 500 index, uncertainty remains high regarding the future of earnings and margins for most companies in the economy, considering that costs are likely to increase across the board. This might affect names in highly cyclical industries, such as cars or apparel, but Chewy’s customer base remains relatively immune to this.
It probably won’t matter whether the economy is booming or busting; Chewy’s customers are likely to always find room in their budgets to care for the furry members of their family, making the company’s underlying financials and future valuations easier to understand for both investors and analysts alike.
This might be one of the reasons why institutional buyers from BC Partners decided to start a new position in Chewy stock as of mid-May 2025, building up a stake worth up to $7.1 billion, or 53.1% ownership in the company. Considering the timing (and size) of this transaction, investors can somewhat confirm that Chewy is now one of the preferred stocks in today’s market.
At the same time, investors can note that up to 17.2% of Chewy stock’s short interest declined over the past month alone, also showing signs of potential bearish capitulation, to say the least, leaving room for these institutional buyers to take their place instead.
More than just bearish capitulation, it also signals that additional upside could be on the way for Chewy stock, even as it already trades relatively close to its 52-week high, where a breakout into new highs could add pressure for more institutional momentum buyers to enter and support the stock.
How Much More Upside?
While it may take some time for Wall Street analysts to adjust to the fact that Chewy stock will be one of the preferred names in the coming months, there are some recent signs of renewed optimism as the company approaches a new high for the year.
Analyst Trevor Young from Barclays reiterated his Overweight rating on Chewy stock as of late May 2025, also setting a price target of up to $50 per share to call for an implied upside potential of 10.6% from its current trading price. It is likely that other analysts will follow suit with similarly optimistic price targets, possibly even higher.
It would only make sense considering the sizable investment made by this institution, which will likely not be satisfied with a low double-digit percentage return at this point. All told, there is also another optimism gauge that investors can consider for their potential buying thesis.
This gauge reflects the market's willingness to value Chewy stock compared to its peers. By trading at a price-to-earnings (P/E) ratio of up to 49.7 times, the company commands a steep premium compared to the retail sector and its average valuation of 24.6 times today.
While some investors might fear that this makes Chewy stock expensive, they must keep in mind that the market is often willing to overpay for names it believes can outperform not only their peers but also the broader market. In this context, Chewy and its current setup justify the premium commanded today.
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The article "Chewy Stock Gets a New $7.1 Billion Investor and Analyst Upgrade " first appeared on MarketBeat.
