In the wake of the fading glory days for petcare stocks during the pandemic, investors are faced with the dilemma of choosing between Petco Health and Wellness (NASDAQ:WOOF) and Chewy (NYSE:CHWY). Both companies have witnessed a significant downturn in their stocks over the past year, with Petco leading the list of poor performers, down 22 percentage points more than Chewy.
Petco’s Disappointing Post-IPO Performance
Petco went public in January 2021 at $18 a share, and since then, WOOF has seen an 85% decline in the 36 months following its IPO. This dismal performance has left IPO buyers of Petco highly disappointed compared to their counterparts who invested in Chewy. Despite the disappointing stock performance, it appears that the private equity companies responsible for taking both businesses public may have still profited.
Examining Petco’s IPO history reveals a rocky journey with multiple attempts. After its initial IPO in 1994, followed by a second one in 2002, Petco was eventually taken private by TPG and Leonard Green. The company changed hands multiple times until it was sold to CVC Capital Partners and the Canadian Pension Plan Investment Board in 2015 for $4.6 billion. The latest owners, who took Petco public in 2021, retained 81% voting control but faced challenges as the stock value plunged.
Chewy’s Story and Post-IPO Resilience
Chewy, on the other hand, went public in June 2019 at $22 a share and has experienced a more modest decline of 10% over 55 months. Acquired by PetSmart for $3.35 billion in 2017, Chewy was taken public to alleviate some of PetSmart’s debt. Despite a rocky start, BC Partners, the private equity consortium leading the acquisition of PetSmart, has seen the value of their Chewy shares rise significantly.
While Chewy’s stock performance is relatively better than Petco’s, it’s essential to note its adjusted EBITDA profit margin of 1.2%, which leaves room for improvement. Analysts remain divided on the two stocks, with 12 out of 20 covering CHWY rating it a Buy, anticipating a 25% upside, while only five out of 14 covering WOOF rate it a Buy with a target price of $3.38, representing a 28% increase from its current value.
In conclusion, if forced to choose between Petco and Chewy, Chewy emerges as the more favorable option, although concerns about its profit margin persist. Ultimately, both stocks underscore the challenges within the petcare sector, suggesting that there might be better alternatives for investors seeking opportunities in this industry.
Featured Image: Megapixl
Author Faith Yakubu 
