(Bloomberg) -- Chewy Inc. fell as some investors wanted to see a bigger sales beat and higher forecast boost from the online pet retailer.

“We think the market is still trying to determine Chewy’s ‘true’ earnings potential, as initial expectations may have been for more pronounced upside,” Jefferies analyst Brent Thill wrote in a note.

Analysts were generally bullish on Chewy’s fundamentals following the earnings release, which was just the second quarterly financial update since the company’s initial public offering in June. However, with the stock up 38% since its debut, opinions are mixed on its valuation.

Chewy shares tumbled as much as 5.1% ahead of the bell Wednesday to $28.70. This would be the lowest level the stock has touched since shares were priced at $22 on June 13.

Here’s what analysts had to say after the report:

Wells Fargo, Brian Fitzgerald

Fitzgerald continues to view Chewy as a “premium e-commerce asset deserving of a premium valuation.”

Key positives from the quarter included: autoship customer sales growth of nearly 49%; gross margin improvements, driven by better product margin, supply chain efficiencies, and new higher-margin products; and the data management platform launch.

Ebitda margin performance was the key negative in the quarter. “Despite noted gross margin tailwinds and an increase in full-year revenue guidance, Ebitda margin outlook remained largely unchanged.”

Maintains outperform, price target $40.

Jefferies, Brent Thill

“All signs point to continued beat and raise quarters.”

Gross margin, which was about 100 basis points above analyst estimates, was “a bright spot.” Thill said progression here “could indicate a shorter than expected pathway to profitability.”

That said, Thill remains “mindful of operating losses and presence of larger-scale competitors,” including Amazon.com, Walmart Inc., and Target Corp. Valuation is also keeping him back from becoming “more constructive” on the name. He has a hold rating and cut his price target to $34 from $36 due to lower valuation across peers.

What Bloomberg Intelligence says:

“Despite heightened competition in 2Q from Amazon Prime Day and other holidays, Chewy remains able to grow, with Autoship sales accelerating faster than the total and now at 69% penetration. Chewy will likely exceed its full-year sales-growth outlook of 35-36%, in our view.”--Seema Shah, senior consumer discretionary analyst

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Morgan Stanley, Brian Nowak

Chewy’s revised revenue and adjusted Ebitda forecasts are 1% and 12% above Nowak’s previous estimates at the top end, which “highlight why we like its position as the online leader in the staple-like pet space.”

“The one point to pick at” was SG&A, which was $14 million higher than expected due to a fulfillment center launch and higher public company costs, the analyst said. “Given the size of this line item (17% of revenue) it will be important to monitor this.”

Nowak maintains his equal-weight rating given valuation. He believes Chewy will have to accelerate net buyer additions and/or show that some of its “blue sky opportunities (healthcare, services, etc) are starting to meaningfully contribute in order to sustain” the current multiple. His price target remains $34.

RBC, Mark Mahaney

“Fundamental trends were largely neutral, with revenue growth decelerating 2 points to 43% y/y, gross margins solidly expanding 301 basis points y/y and Ebitda loss improving $24 million y/y but worsening $13 million q/q.”

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To contact the reporter on this story: Janet Freund in New York at jfreund11@bloomberg.net

To contact the editor responsible for this story: Catherine Larkin at clarkin4@bloomberg.net

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