William Blair analyst Dylan Carden reiterated an Outperform rating on Chewy Inc. (NYSE: CHWY)

The analyst commented, "Chewy is scheduled to report fourth-quarter results on Wednesday, March 25, before the market opens. Since reporting strong third-quarter results, shares have declined more than 25%, in large part we believe as the broader market has re-rated in gravitating to GAAP valuation metrics, with shares now valued at 27 times our initial 2027 EPS estimate. Intraquarter data meanwhile has been stable to encouraging despite a still relatively soft end-market. As such, we expect another quarter of better-than-expected top- and bottom-line performance. Whether that will matter is another question, as shares have declined on good prints over the last few quarters. Inbound activity has picked up at these levels, where shares seem to be feeling out a bottom (barring announcements from Costco [COST $979.92; Outperform] around selling fresh food)... As to what can get shares to start working again, we still anticipate there is larger upside to near- and medium-term active customer estimates... We see the largest risk as simply the disconnect between fundamentals and stock movements. Our broader thesis remains relatively simple: the pet industry moves from roughly 35% online to well above 50%, Chewy continues to capture $0.50 of every $1 that moves online, and it has natural margin drivers in the form of cohort maturity, auto-ship, higher levels of automation, and mix shift into higher-margin categories, namely private label and healthcare. Apart from acquisition of a larger vet chain (we feel is likely in 2026), much of the free cash flow has limited use to a model that runs capex below 2% of sales, and therefore ultimately finds its way back to holders once BC Partners (now below 50%) sells out."

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Shares of Chewy Inc. closed at $24.33 yesterday.