Investing in this sector is becoming increasingly popular on Wall Street.

A report from S&P Global Market Intelligence shows Chewy’s shares jumped 26.1% in October. It is fair to say that Chewy benefited from a more optimistic market for the month, as the S&P 500 was up 8%. Although this outperformance was notable, it was the result of optimism about the upcoming financial report as well as the launch of a newly developed product.

So, What’s Popping?

A third-quarter financial report for 2022 will be available in November. The future, however, appears promising to analysts. According to Yahoo! Finance, third-party research firm YipitData predicted Chewy would beat its earnings guidance for the third quarter.

Throughout the month, Wall Street continued to promote Chewy’s stock. Chewy’s stock price target was given a $42 price target by Oppenheimer analyst Rupesh Parikh on Oct. 6. Pet food is one of the company’s most popular products. Chewy, however, can expand into areas like pet health, as Parikh specifically notes.

Corey Grady, an analyst at Jefferies, also noted this expansion. According to The Fly, Grady recommended buying Chewy stock on Oct. 21 and praised the company’s “adjacent opportunities,” giving it a price target of $57 per share.

On Oct. 20, Chewy announced a partnership with insurance-technology company Lemonade to offer pet insurance. Moreover, to be clear, Chewy already offers pet health services and insurance plans. When Lemonade launches next spring, consumers will have more options. 

Considering Chewy’s partnership with Lemonade, Piper Sandler analyst John Barnidge is extremely bullish on the stock. Following Parikh and Grady’s price targets of $42 and $57, Barnidge gave Chewy stock a $62 price target the day the partnership was announced — an almost 100% increase from where it was trading at the time.

So, Are They Our Next Best Friends?

Despite Wall Street’s bullish sentiment, investors shouldn’t buy Chewy stock before earnings. An analyst’s commentary helps understand what is happening in the market and the business. There are times when analysts are right, but they are not always right. Some people are just looking forward to the next quarter, not the next decade.

When evaluating Chewy stock, I suggest taking a longer-term perspective. A few key metrics for the company improved in the second quarter of 2022, including average order value per active customer, gross margin, and net income. Your goal should be to see that.

Nevertheless, Chewy lost some ground in terms of active customers, dropping from 20.6 million in the first quarter to 20.5 million in the second. Considering the company’s belief that its market opportunity is much larger than this, the drop is concerning. Net sales growth for the third quarter is expected to be between 10% and 11%. Perhaps its return to growth will be confirmed if it exceeds this guidance, as YipitData suggests.