Chewy (CHWY) posted record profits, beat earnings expectations, and added nearly 200,000 net customers in its latest quarter.
Then investors pushed the stock to its lowest level in over a year.
The sell-off followed a revenue guidance cut.
Chewy trimmed its organic full-year fiscal 2026 revenue outlook, citing a softer consumer spending environment for pet products.
Over five trading sessions that followed, the stock fell more than 11%, closing Wednesday, June 10, at $18.77.
Morgan Stanley took a different view.
In a June 10 research note shared with me, the firm maintained its Overweight rating on Chewy and set a $42 price target, trimming it by just a dollar from the prior $43.
At Wednesday's closing price, Morgan Stanley's target implies more than 120% upside.
Why Morgan Stanley still sees Chewy stock more than doubling from $18.77
Morgan Stanley, after reviewing both the guidance cut and the company's underlying results, still believes Chewy trades far below its actual worth, describing the current stock price as disconnected from the company's intrinsic value.
The valuation case for Chewy at current prices
At $18.77, Chewy trades at approximately 7 times its expected 2027 EBITDA and 19 times its expected 2027 earnings.
EBITDA is a measure of how profitably a company runs its core operations.
The firm views both multiples as well below what a business with Chewy's long-term growth profile should command.
One factor that anchored Morgan Stanley's conviction was Chewy's decision not to cut its profit margin forecast.
The company held its full-year fiscal 2026 adjusted EBITDA margin guidance at 6.6% to 6.8%, even as it lowered revenue expectations.
That mainatined forecast signals that Chewy's cost structure remains intact as sales growth slows.
What Chewy's first quarter of fiscal 2026 actually showed
Chewy reported net sales of $3.36 billion for the first quarter of fiscal 2026, ended May 3, up 7.7% year over year, according to Chewy's Q1 2026 earnings release filed with the SEC.
Net income reached $94.8 million, more than 51% above the prior year.
CEO Sumit Singh cited "record profitability" despite a tougher consumer environment, as the company confirmed nearly 200,000 net new customer additions.
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Alongside those results came the guidance cut.
Chewy trimmed its organic fiscal 2026 full-year revenue forecast by approximately 215 basis points, or about 2.15 percentage points, citing softer pet spending conditions.