Chewy Inc. (CHWY) stock is down after reporting strong Q2 revenue and free cash flow (FCF) growth and FCF margins on Sept. 10. As a result, CHWY looks undervalued here by at least 15%-16%. One way to play it is to short out-of-the-money put options.
CHWY is down to $35.13 in midday trading on Friday, September 12. This is after it peaked at $42.33 on September 5, before its results were released.
CHWY – last 3 months – Barchart – As of Sept. 12, 2025
However, after reviewing Chewy’s strong free cash flow (FCF) and FCF margins, it’s evident that CHWY stock is worth at least $40.68 per share. This article will show why.
Chewy, Inc., which sells pet food, products, and services online, said its Q2 revenue ending Aug. 3 rose 8.6% Y/Y and its adjusted net income was up $36.4 million or +34.8% to $141.1 million.
More importantly, its free cash flow (FCF) was positive and rose from $91.5 million last year Q2 to $105.9 million, a gain of +15.7%. In other words, even though net sales were up 8.6% its FCF rose 82.5% more, or up +15.7%.
That implies the company is generating more cash flow from operations as its sales increase. In other words, the FCF margin (i.e., % of sales) rose from 3.20% last year to $3.41% this year.
This can be seen in Stock Analysis’s quarterly FCF margin analysis, as well as the table provided by management in the earnings release showing its FCF calculation:
Chewy – FCF and FCF margins Q2 2025
Moreover, over the past year, according to Stock Analysis, its FCF margin has been 3.75%. We can use that to forecast the company’s FCF over the next 12 months (NTM).
For example, analysts now expect sales this year ending Jan. 2026 will reach $12.56 billion and $13.58 billion for the year ending Jan. 2027.
That implies that its NTM net sales will be $13.07 billion. As a result, after applying at least a 3.75% FCF margin, its FCF could rise to over $490 million:
$13.07 billion x 0.0375 = $490.15 million FCF
That is significantly higher than its run-rate FCF. For example, this is 15.7% higher…
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