Ignore the Shares of Chewy? Don't Overlook These Two Obvious Alternatives
Investors Focus on Tariffs Battle as S&P 500 Momentum Halted
The ongoing tariffs disagreement remains a primary concern for investors on Friday. This development has closed off any additional gains for the S&P 500, which experienced a 2% jump earlier in the week.
In addition to the tariffs standoff, the latest core PCE figure for April will be unveiled on Friday. The U.S. core personal consumption expenditures price index is a crucial factor in the Federal Reserve's interest rate decisions.
Economists predict the core PCE to register a 2.5% annual increase, a 0.1 percentage point rise from the previous month. Moreover, the University of Michigan's U.S. Consumer Sentiment Index for May is expected to stand at 51.1, a decline from 52.2 in April and 69.1 in May 2024.
The spotlight also falls on the $4.83 trillion market that most investors appear to be overlooking. Interested investors are invited to join a list for the website's daily unusual options report, a free service.
In other news, experts predict the core PCE to expand by 2.5% year-over-year in April, an increase of 0.1 percentage point from the previous month. Also to be released is the University of Michigan's U.S. Consumer Sentiment Index for May, which is estimated to be 51.1, down from 52.2 in April and 69.1 in May 2024.
Michael Batnick, an investor known as The Irrelevant Investor, raised concerns about the resilience of public companies. According to Batnick, over 40% of companies previously included in the Russell 3000 Index have suffered a 70% price drop from their peak levels and have yet to recover.
Chewy, the online pet care retailer, finds itself in the crosshairs of Bathnick's comments. Despite the company's popularity, Batnick questions its exceptional status within the industry, noting low profitability and sporadic operating profits.
Taking a closer look at Chewy's financials, the company has recorded an operating loss in 14 out of its 23 quarters as a public company. In Q1 2025, Chewy reported an operating loss of $9.7 million on $3.25 billion in revenue. The company's highest operating profit over the past 23 quarters was $64.6 million in Q1 2024, amounting to an operating margin of 2.2%.
Despite the concerns about Chewy's profitability, the stock has performed well. In 2025, Chewy's shares have risen by 33%, a significant improvement over the S&P 500. On a yearly basis, the stock has gained 106%.
Compared to Kroger, a grocery store chain with an operating margin of 1.8% in Q4 2024, Chewy's enterprise value of $18.37 billion is 52.4 times its EBITDA. This discrepancy has led some investors to argue that Chewy deserves a higher multiple due to its higher sales growth in 2024 (6.4%) compared to Kroger (1.5%).
However, skeptics point to Kroger's 23 consecutive quarters of operating profits, 15 more than Chewy, as an indication of either Kroger's undervalued status or Chewy's overvaluation.
Moving to the recent unusual options activity, 698 call options acting unusually were observed on Thursday. The two most active call options, both associated with Chewy, were among the top 100.
These calls, set to expire next Friday, are out of the money and have low profit probabilities. However, their low ask prices and the stock's recent upward momentum make them attractive to some investors.
Renewed tariffs worries and the upcoming release of key economic indicators have brought the S&P 500's recent gains to a halt. In addition, concerns about the resilience of public companies, particularly in the pet care sector, continue to shape investor sentiment.
- In light of the tariffs standoff and the ongoing discussions on key economic indicators, some investors might seek alternative investment opportunities, such as options trading in the finance sector, especially in technology-driven industries like online pet care retailers.
- Meanwhile, the escalating tariffs battle and the uncertain economic environment could incentivize investors to explore different investment options, like options trading in sectors like technology, as they navigate the complexities of the market, even in industries like pet care.
