Investing.com -- Morgan Stanley sees Chewy (NYSE:CHWY) as an attractive buying opportunity following a 15% pullback in its stock price. 

The firm maintained an Overweight rating on the stock in a note Monday, citing strong fundamentals despite short-term concerns around elevated investor expectations for fiscal year 2025 (FY25) guidance.

According to Morgan Stanley, the recent decline in CHWY’s stock price was driven by broader market weakness and concerns over macroeconomic conditions rather than company-specific issues. 

The stock now trades at 14x FY26 EBITDA, which analysts believe may be overdone, making it the best risk-reward setup in small- and mid-cap (SMID) eCommerce.

"If the consumer does weaken, we think CHWY will outperform eCommerce peers with its high non-discretionary mix (85% consumables)&loyal customer base," the analysts wrote. "If the macro stabilizes, we see potential for growing pet households leading to net adds upside that could drive multiple expansion."

Morgan Stanley expects strong Q4 results, with alternative data suggesting >200K net adds and mid-teens revenue growth. 

However, they note that buy-side expectations for FY25 revenue and EBITDA guidance are elevated, and Chewy’s historically conservative approach may lead to a softer-than-expected outlook, potentially causing short-term pressure on the stock.

"We believe investors may be underestimating the normal level of conservatism embedded [in Chewy’s guidance],” the analysts noted. "Given the history of conservatism and the heightened near-term macro&consumer uncertainty, we expect the initial guide to be low enough to enable a clear beat&raise cadence."

“The recent selloff opens a compelling entry point&potential post-earnings weakness could present a buying opportunity,” argues the bank.

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