Chewy's $1.25 Billion Share Sale: A Vote of Confidence or a Signal of Caution?

The sale of $1.25 billion worth of Chewy Inc. (CHWY) stock by its largest investor, BC Partners and its affiliate Argos Holdings, has sent ripples through markets, raising questions about the sustainability of the pet e-commerce giant's sky-high valuation. The transaction, which saw 29.94 million Class B shares converted to Class A and sold at $41.75 per share on June 25, 2025, marks a significant shift in ownership dynamics. Yet, despite the sale, BC Partners retained 89.8% of Chewy's voting power, signaling its continued commitment to long-term control. For investors, the move underscores a critical dilemma: Is Chewy's premium valuation justified by its growth trajectory, or is this a warning of looming institutional pressure?

The sale's immediate impact was a 1.88% dip in Chewy's stock price, a reflection of near-term supply pressures as the public float expanded by 6%. But the transaction also coincided with Chewy's $100 million share repurchase from the selling shareholders—a move approved by an independent board committee—as part of a $500 million buyback program. This counterbalance suggests management believes the stock is undervalued relative to its growth potential.

The Financial Case for Chewy's Valuation

Chewy's first-quarter 2025 results offer a glimpse into its growth engine. Net sales hit $3.12 billion, a 8.3% year-over-year increase, driven by its Autoship subscription program, which now accounts for 82% of sales at $2.56 billion—up 14.8% year-over-year. Active customers grew to 20.8 million, with 240,000 added sequentially, a testament to the power of recurring revenue models.

Adjusted EBITDA margins improved to 6.2%, up 50 basis points from 2024, while net income surged to $392.74 million—a staggering 892% increase from the previous year. These figures, combined with net debt of -$93.36 million, highlight Chewy's improving financial health. Yet its valuation metrics are eyebrow-raising: a 62.13x EV/EBITDA multiple and a 1.41x price-to-sales ratio, both far above industry averages.

Institutional Sell-Off vs. Retail Appeal

BC Partners' decision to reduce its economic stake by 13%—while retaining voting control—may signal a strategic rebalancing of its portfolio. Institutional investors often trim positions when valuations stretch, even if they believe in the underlying business. However, the sale could also attract retail investors drawn to Chewy's subscription model and its expansion into high-margin services like vetcare clinics (11 operational, with plans for 8–10 more annually).

The increased public float may lower barriers for retail participation, but the stock's valuation premium demands scrutiny. Chewy's current $41.29 share price reflects optimism about its ability to monetize 20 million-plus customers through services like Chewy Plus, its membership program, and vetcare. Yet the 62x EV/EBITDA ratio implies investors are pricing in decades of growth—a bet only sustainable if Chewy can consistently deliver margin expansion and market share gains.

The Crossroads of Growth and Value

Chewy's strategy hinges on two pillars: scaling its subscription business and diversifying into adjacent markets. The Autoship program's 14.8% growth in sales suggests it remains a reliable revenue driver. Meanwhile, vetcare clinics, which offer recurring revenue from pet care services, could offset the low margins of pet food sales. However, executing this vision requires capital—hence the buyback program, which aims to neutralize dilution from the institutional sale.

The risk lies in whether Chewy can convert its customer base into higher-margin service users fast enough to justify its valuation. A slowdown in Autoship adoption or vetcare clinic profitability could trigger a reassessment of its multiples.

Investment Implications

For long-term investors, Chewy's valuation is a gamble on its ability to become the Amazon of pet care—a dominant, vertically integrated ecosystem. The stock's post-sale dip may present an entry point for those willing to bet on its vision, especially with management's buyback signaling confidence.

But short-term traders should tread carefully. The 6% increase in public float introduces liquidity risks, and the high valuation leaves little margin for error. Institutions' partial exit also highlights a divergence in sentiment: while BC Partners retains control, others may see a chance to lock in gains.

In the end, Chewy's story is one of ambition versus arithmetic. The question isn't whether it's growing—it is—but whether its growth can ever justify a 62x multiple. For now, the jury remains out.

Final Note: Chewy's valuation hinges on execution. Investors must decide: Is this a buy at $41, or a sell at $42? The answer will come down to whether Chewy can turn its pet-centric vision into profit.