Hedge fund managers continue to buy the pet company. Tim Melvin explores the valuation.

Is Chewy a good stock to buy? Not according to David Einhorn. In his 2nd quarter shareholder letter, the Greenlight Capital manager talked disparagingly about Chewy (CHWY), the online pet products company.

He compared the company to one of the great internet disasters of the 2000s: Pets.Com.

That company burned through billions of dollars of capital. It also left investors with massive losses when the bubble burst. He pointed out that Chewy has burned through about $1.6 billion so far. He also writes that the firm is not expected to be profitable until 2023.

Co-Founder Ryan Cohen took umbrage at the comments and said at the time, “That is an absolute crazy comparison. I think there’s really nothing in common between those two businesses.”

Until recently, Einhorn was the more correct of the two. He has not publicly disclosed a short bet against the company, but if he was able to short the stock after the IPO this summer. He has made some money for his investors as the stock is down 18% and at one point was down almost 40% from the highs.

Now it seems Chewy has found friends among the Tiger Cubs.

Steve Mandel of Lone Pine has owned the stock for some time.

Now fellow Tiger alumni O. Andreas Halvorsen has revealed a 3.65-million share stake. That figure represents more than 6% of the company. The stock has recovered by more than 20% over the last month in spite of the insider’s lock-up expiring.

Is Chewy a good stock to buy?

If I had to pick a side on the stock, I would lean more towards Mr. Einhorn’s view that the bullish stance of the Tiger cubs. Chewy has an $11 billion market cap and is not going to be profitable for some time. The company will have to continually surpass Wall Street estimates to justify this high of a valuation, and that is a tall order.

After years of success, Einhorn has had a rough go of it the past few years as his value-oriented selection has struggled, and his short positions have continued to skyrocket.

His well-known short-bets against tesla and Netflix were working earlier this year, but both stocks have recovered sharply in the fourth quarter of 2019. Through the end of November, his Green Light capital fund was up a little over 14%. The fund dropped an additional 1.6% after falling by 6% in October.

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