Is Chewy Overvalued or Undervalued? A Deep Dive into Its 24x 2026 EBITDA Multiple

Chewy (CHWY) has long been a poster child for the pet retail boom, but its stock now sits at a critical crossroads. Jefferies recently downgraded the company to “Hold,” citing its stock's valuation of 24 times its projected 2026 EBITDA—a multiple the firm calls “one standard deviation above historical averages.” This raises the question: Is Chewy overpriced, or does its growth story still justify its premium?

Let's dissect the numbers.

The Valuation Conundrum: 24x 2026 EBITDA

Chewy's current valuation hinges on its ability to deliver on aggressive EBITDA targets. At 24x 2026 EBITDA, the stock is priced at ~$47.28, implying a $1.97 billion EBITDA estimate for 2026. Analysts at Jefferies argue this multiple is unsustainable. They note the figure is eight turns higher than March 2025 levels and far above the firm's average valuation of Chewy over the past five years. Their skepticism isn't unfounded:

• Jefferies' Bear Case: The downgrade reflects concerns that Chewy's stock has already priced in “most positive developments,” such as its Q1 2025 results and margin improvements. The firm slashed its price target to $43 (from $45), based on a 20x multiple of 2027 EBITDA, effectively betting that growth will slow.
• Contrasting Bulls: Barclays and Evercore ISI remain more optimistic. Barclays raised its price target to $50, citing Chewy's Autoship program dominance (contributing 80.6% of Q4 sales) and margin expansion. Evercore's $47 price target assumes a 22x 2026 EBITDA multiple, suggesting bulls still see upside in Chewy's execution.

Near-Term Catalysts: Q1 Earnings and Digital Ad Momentum

The June 11 Q1 earnings report will be a pivotal test. Chewy has guided for $3.06–$3.09 billion in sales (6–7% growth) and $75–$80 million in EBITDA. Analysts at Piper Sandler argue that Chewy's sponsored ads revenue, which grew 13% in Q4, could drive incremental margins. Meanwhile, its supply chain investments—including automation at distribution centers—should lower fulfillment costs, a key lever for profitability.

Another wildcard: Chewy's Vet Care Clinics, which now number 8–10 locations. While still small, the clinics could reduce customer churn by offering in-person services, a strategic moat against rivals like Petco.

Risks Lurking Under the Hood

While Chewy's valuation is contentious, risks are mounting:

1. CFO Transition Uncertainty: David Reeder, CFO since February 2024, is departing for a semiconductor CEO role. His exit, effective post-Q1 earnings, could spook investors. Reeder's tenure saw Chewy refine its financial strategy, including a $1.2 billion credit facility. The search for his successor adds execution risk.
2. Valuation Sensitivity: Chewy's stock trades at 145x trailing P/E, a figure that dwarfs its peers (e.g., Walmart's 20x). While forward P/E has improved to ~35x, it still implies high expectations for earnings growth.
3. Market Saturation: The pet retail market faces headwinds. Jefferies notes minimal price inflation in 2025 and sluggish pet spending growth, which could crimp revenue. Competitors like Amazon and Walmart's Jet.com are also stepping up their pet offerings.

The Bottom Line: Hold for Now, Buy on Dips?

Chewy's valuation is a high-wire act. Bulls see a $1 billion EBITDA by 2026 as achievable, fueled by margin expansion and digital ad growth. Bears argue the stock is a “meme relic,” overvalued in a low-growth environment.

Investment Takeaway:
- Hold: For now, the stock's sensitivity to valuation concerns and the CFO transition make it a volatile holding. Wait for the Q1 report to confirm margin resilience and Autoship momentum.
- Buy on Dips: If the stock retreats toward $40 (the consensus target), the 20x 2027 EBITDA multiple becomes more compelling. However, avoid chasing rallies above $50 unless Chewy delivers sustained EBITDA beats.

In a market hungry for growth, Chewy's premium is a bet on execution—both financially and operationally. For investors, patience is key.

Final Note: Chewy's valuation debate underscores a broader theme: In an era of high expectations, even the most promising companies must deliver more than Wall Street already assumes.