Why Chewy Stock Dropped 11% Last Month

Shares of pet e-commerce company Chewy (NYSE: CHWY) dropped 11.2% during July, according to data provided by S&P Global Market Intelligence . The stock was actually down closer to 12% in the first days of July. It then bounced all the way back before finally sliding back down to its 11% drop for the month -- it was a bumpy ride.

Some of the volatility for Chewy stock in July is attributable to meme-stock traders -- investors excited by other investors on social media. One of the faces of the meme-stock movement is Keith Gill, aka Roaring Kitty. In late June, a regulatory filing showed that Gill owned 6.6% of Chewy stock , which was a shockingly high number that continued to excite meme-stock investors in July.

However, a class action lawsuit against Gill did throw some cold water on the meme-stock movement with Chewy stock, even if the lawsuit was withdrawn just days later.

Moreover, the analyst community provided commentary during July for Chewy stock that differed in tone. For example, Citi analyst Steven Zaccone raised his price target for Chewy stock to $28 per share, an increase of $12, according to The Fly. But its own analysis leads Wolfe Research to believe that Chewy stock will merely be an average performer form here, according to Fintel. Investors might either be encouraged or discouraged depending on which analyst they listened to in July.

What's really important?

I hope readers noticed the theme of what drove Chewy stock price in July. Whether it was meme-stock investors or prominent Wall Street analysts, Chewy stock rose and fell as divergent opinions drove sentiment. This can drive stock returns over a short time period such as a month. But longer-term, more material factors are more important.

In August, Chewy stock has continued to drop and it may have a more material explanation. On Aug. 1, Amazon reported quarterly financial results. And CFO Brian Olsavsky said: "Consumers [are] being careful with their spend, trading down, looking for lower [average selling price] products, looking for deals. That continued into Q2, and we expect it to continue into Q3."

For retailers and e-commerce companies , this commentary from Amazon is seen as a good pulse on the economy. Chewy stock is dropping because investors fear consumer spending is slowing.

What now?

Chewy is scheduled to report its second-quarter financial results on Aug. 28. So investors won't know for sure how the business has been doing recently until then. But net sales in the first quarter were only up 3% and management only guided for 2% to 3% in the upcoming second quarter.

That's a really modest growth rate for Chewy. The company has plenty of long-term promise. But I would expect investors to react negatively if the company fails to hit its modest growth expectations when it reports Q2 results. And with consumers getting stretched, it's definitely possible that Chewy will face economic headwinds for now.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Citigroup is an advertising partner of The Ascent, a Motley Fool company. Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Chewy. The Motley Fool has a disclosure policy .