Chewie: Buy, sell or hold?

The stock market has been on the rise over the past year, and the S&P 500 recently hit a new high, confirming its presence in a bull market. Growth stocks have led this rise as an environment of expansion and optimism generally supports these kinds of players. Still, some promising growth stocks have missed the momentum so far.

One striking example is: Chewy (NYSE: CHWY)is an e-commerce site with everything your pet needs, from food and toys to health insurance. Chewy achieved a key milestone of profitability in 2022 and continued to grow sales and retain returning customers despite a difficult economic environment last year. The company has also begun significant growth projects. Still, the stock hasn’t followed suit, falling 55% over the past year.

Considering this, is Chewy a stock to buy, sell, or hold? Let’s dig deeper and find out.

Image source: Getty Images.

Chewy’s sales and profitability

First, let’s give a brief background on Chewy and what’s going on so far. As mentioned earlier, Chewy sells a variety of pet care products and services. Customers love this one-stop shop where they can buy everything they need for their furry and non-furry friends, while also enjoying added benefits like online vet visits. This has helped Chewy grow its profits over time, and it has recently turned that trend into profitability.

CHWY Net Income (Annual) data from YCharts

And Chewy has tripled its net sales and doubled its active customers since going public in 2019.

What I particularly like about Chewy is that it provides clues about future profits, and that is the company’s autoship service. Autoship automatically reorders your favorite products you use often, like pet food, and delivers them to your doorstep. And Autoship sales account for approximately 76% of the company’s total net sales. Therefore, the majority of Chewy’s sales come from loyal customers who commit to shopping on this e-commerce site.

This is positive because it shows that the company has what it takes to build a loyal customer base. And the group has proven its intention to continue shopping with Chewy.

Now let’s talk about future growth potential. Chewy launched two major initiatives last year that could significantly increase its profits over time. The company’s first foray into international territory was expansion into Canada. Because of the strength of Chewy’s current e-commerce infrastructure, no major investments have been needed so far. And importantly, Chewy sees the Canadian market as equal to the U.S. in terms of market share and potential profitability.

The company said demand in Canada has been strong so far and Autoship sign-ups are “healthy.”

tough veterinary care

In the company’s second big growth move, Chewy recently announced “Chewy Vet Care,” a veterinary practice that includes routine care, urgent care and surgery. The company plans to open its first location in South Florida early this year.

This is a great move as it rounds out Chewy’s services, expanding its revenue base (now including in-office veterinary care) and giving Chewy an entirely new platform to introduce its e-commerce services to pet owners. Some people may not have used Chewy yet, but once they visit a Chewy veterinary clinic, they may be tempted to give the e-commerce platform a try.

Even before expanding internationally and launching a veterinary business, Chewy became a leader in pet care. The company is the largest pet specialty retailer in the United States and also the largest pet pharmacy in the United States. And the $144 billion total U.S. pet market gives Chewy plenty of room to grow.

Buy, Sell or Hold?

Now let’s go back to our question. Should you buy, sell, or hold Chewy right now? Performance and demand for Chewy products have increased, but the stock price has not kept up. This may make you wonder if the stock will go up, it may stop you from buying the stock, or it may lead you to sell the stock. But before you do that, consider that Chewy is still in the early stages of its growth story, having only been a public company for a few years, and through turbulent times, including difficult economic times following the early pandemic era.

Today, Chewy’s stock trades at just 26 times future earnings estimates. This is a theft considering its earnings performance to date and its prospects going forward. And it is important to focus on the concept of long-term investing. This means holding on to stocks for many years. Chewy may not be able to take off right away, but if the company continues on the path it has taken so far, it could generate significant returns over the long term.

So, without paying attention to Chewy’s stock price, I will use this as an opportunity to buy this player with tremendous potential.

Should you invest $1,000 in Chewy right now?

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Adria Cimino has no positions in any of the stocks mentioned. The Motley Fool holds a position on Chewy and recommends it. The Motley Fool has a disclosure policy.