PreMarket Prep Stock Of The Day: Are Traders Biting Off More Than They Can Chew?

Trading an issue on the day of its earnings report can be difficult. Monitoring the after-hours or premarket action along with being cognizant of the trading range from the last few sessions can be helpful. A good example of this is the price action in Chewy Inc. CHWY, which is the PreMarket Prep Stock of the Day.

Chewy's 2-Day Trading Range: The Street was leaning short into the report, as the issue has been in an extended downtrend. In Tuesday’s session, the issue had a range of $24.76 to $27.92 and finished in the red by $2.31, or 8.5%, at $24.80. On Wednesday, it had a range from $22.96 to $25.51 and finished in red by $1.31, or 5.3%, to close at $23.49.

That was the second-lowest close for the issue since March 2020, with the lowest close for the move coming on May 24 at $23.31.

Chewy's Q1 Beat: After the close on Wednesday, the company reported a first-quarter EPS beat by making 4 cents per share as opposed to the estimate of a loss of 13 cents per share. Also, the company reported quarterly sales of $2.43 billion, which beat the analyst consensus estimate of $2.42 billion.

Following the better-than-expected report after the close on Wednesday, the issue blasted to $30.26 and retreated to end the session at $27.90.

PreMarket Prep's Take: From a long-term perspective, co-host Dennis Dick posed the question: “Do they make money or have a path to profitability? GARP, growth at a reasonable price, is what I want from a company and I am not sure they are there yet.”

The author of this article noted the premarket high as a lofty target but was more focused on the pair of highs at the $28.50 area from mid-May. Also, if looking for support on a retreat, the top of Wednesday’s range ($25.51) would be the first area of support.

CHWY Price Action: After a much higher open ($27.09 vs. $23.50), Chewy immediately peaked a few pennies higher and reversed course. The brief decline found support just ahead of the top of Wednesday’s range ($25.51), only reaching $25.80, and began to rebound.

The stock ultimately gained 24.17% in Thursday's session, closing at $29.18. 

The discussion on the issue from Thursday’s show can be found here.