Download now: The Downfall of Cable, and the Rise of 5G!

This One's Going Higher

Written by Briton Ryle
Posted December 11, 2019

It occurs to me that I haven't written up a great stock to own for you loyal Wealth Daily readers in a while. What better time to get you positioned for a little extra holiday loot than just a couple weeks before Christmas?

Editor's Note: Okay, so I did write up lithium miner Albemarle (NYSE: ALB) on November 25, but that was more of a "keep your eye on it" kind of thing. 

I don't always do top down analysis for new Wealth Advisory stocks. Sometimes it's as simple as recommending a great company at a good price. But when a dynamic new company serving a strong consumer market makes its initial public offering (IPO), I pay attention. 

Because with IPOs, you almost never have to just run right out and buy the stock. At least not for a long-term hold. Yeah, you might make some loot for a trade, but IPOs have this bad habit of trading below their offer price within a few months of hitting the big time. 

And so it was with this stock. It came out at $35 in late June. I watched. I waited. And when it dipped down to $23 and rallied, I said "Aha! It is time!"

This little gem was our October feature at $26.50. When it rallied over $28 a few days later, I said, "Oh, Brit, you magnificent genius."

Like clockwork, the stock was back at $23 within two weeks. Yep, my premature allocation had struck again!

Fret not, dear reader. Your narrator was unperturbed. It is not possible to perfectly predict the vagaries of short-term price movement. We bought a cash-flow positive company with very little debt growing revenue at a 50% clip for about 2.5 times sales. 

It was pretty easy to think that the market would come around and the stock price would leap higher...

Dogs and Cats Living Together 

You pretty much have to be bullish on stocks that cater to people who have pets. And no, I will not call pet owners "pet parents." I have kids. I have had many dogs. They are not the same. Go ahead, make your kid sleep outside in a little wooden house with no door and just an old blanket for warmth and see what happens...

I find the comparison of dogs to children deeply offensive. If you consider yourself a pet parent, sorry: We can't be friends. 

But that won't stop me from making some money off a company that just posted 49% year-over-year revenue growth and 33% customer growth serving doting pet owners who spent — holy crap, is this number right? — $72.5 billion on their animals in 2018. 

Wealth Advisory subscribers have done well with pet stocks in the past. We had Blue Buffalo when it got bought out by General Mills. We made 65% on that one. We had PetMed Express (NASDAQ: PETS) at $13 but sold it way too soon. It's $23 now and traded over $50 last year. 

So anyway. The stock I'm writing about today is Chewy (NYSE: CHWY). And yes, I think you should sink your teeth into a few shares. 

A Company Going to the Dogs 

Now, back to that $72 billion number. Chewy is on track to do right about $5 billion in revenue in fiscal 2019. Analysts say $6 billion in fiscal 2020, but I bet you a couple Milk-Bones that Chewy does better than that...

Point is: Chewy hasn't even hit 10% of its addressable market in terms of revenue. 

In terms of customers, Chewy's got 11 million. And there are 85 million American homes with at least one pet. Again, there is a very solid growth story here. 

Analysts have price targets between $30 and $35 for the most part. I think $40 is a better target over the next year. That keeps the price-to-revenue multiple right around 2.5.

That's what I got. Merry Christmas!

Until next time,

brit''s sig

Briton Ryle

follow basic@BritonRyle on Twitter

A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He also contributes a weekly column to the Wealth Daily e-letter. To learn more about Briton, click here.

Buffett's Envy: 50% Annual Returns, Guaranteed