Why Shares of Chewy Stock Soared This Week

Leading online pet care retailer Chewy (NYSE: CHWY) has seen its share price rise by 15% this week as of 3 p.m. ET, according to data provided by S&P Global Market Intelligence, as the market continues to rally around the company's impressive earnings in late May.

While there is no single catalyst for Chewy's run this week, the company is home to a number of compelling forces that may have helped its share price spike nearly 60% in the last three months.

Chewy keeps building momentum

After declining nearly 90% from its all-time high in 2021, Chewy's shares may be showing signs of what is known as a short squeeze. With Chewy reporting six consecutive quarters of profitability topped by a tripling of its earnings per share in its latest quarter, short-sellers have started covering their negative bets against the company.

CHWY Percent of Float Short Chart
CHWY Percent of Float Short Chart

CHWY Percent of Float Short data by YCharts

Still trading with a price-to-sales ratio of 1 -- compared to the S&P 500's average of 2.5 -- and authorizing a new $500 million share buyback plan in May, Chewy has most likely been buying back its own shares recently as well.

In addition to this well-timed share repurchase plan, the company has received 10 buy-now reiterations from analysts since its last earnings report, showing that overall sentiment toward the stock is changing as its profitability blossoms.

Room to keep running?

Despite its rapid recent ascension, Chewy's share price should have plenty of room to continue running as it improves its newfound profitability.

Currently, Chewy is expanding into higher-margin verticals ranging from pet healthcare, pet insurance, and wholly owned veterinary clinics to private-label products, ads on its platform, and a new paid membership program.

Paired with the company's ongoing streamlining of its autoship and e-commerce operations, these higher-margin opportunities make Chewy a promising investment -- even after its recent run.

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Josh Kohn-Lindquist has positions in Chewy. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.