Chewy's stock drops after analyst says don't buy it yet

Shares of Chewy Inc. fell 2.3% in premarket trading Friday, after Wedbush analyst Seth Basham said while he's bullish on the pet products seller's long-term prospects, investors should wait for a pullback before buying given valuation concerns. Basham started coverage with a neutral rating and $30 stock price target, which is 12% below Thursday's closing price of $34.23, which is 56% above the initial public offering price of $22. Basham said Chewy has proven its ability to scale rapidly and deliver improving margins, while the company's Autoship program has helped drive some of the best customer retention rates among its e-commerce peers. He said, however, that his "detailed customer lifetime value model" points to the stock being worth $29 a share. "With [Chewy's stock] trading above these levels following its $22 IPO last week, we await a better entry point," Basham wrote in a note to clients, which was titled, "This dog has bark, but don't bite yet." Chewy went pubic at a time the Renaissance IPO ETF has gained 3.2% over the past three months and the S&P 500 has tacked on 3.5%.

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