The e-commerce landscape, particularly within the pet industry, is witnessing profound shifts as leading players navigate a post-bubble environment. Chewy, a significant player in the pet-focused e-commerce market, is facing challenges, yet there are indications that its downturn might be an overreaction in a market that’s overly fixated on past performance.
The pet industry has shown robust growth, with the companion animal market expanding at an annual rate of 8.2% between 2018 and 2025. This growth can be attributed to the deep emotional bonds many pet owners share with their animals, which range from dogs and cats to birds and reptiles. Given these dynamics, one would typically expect Chewy, a leader in pet e-commerce, to thrive. However, the reality tells a different story, with shares plummeting 80% from their peak in 2021.
Chewy’s downturn is attributed to the broader market conditions rather than failures within the company itself. The stock peaked during a speculative bubble, trading at around seven times its sales — a steep valuation for a company that operates on thin profit margins within an intensely competitive field. As the market corrected itself, Chewy’s stock price fell, dropping to just 0.8 times sales.
Despite this dramatic fall, Chewy’s underlying business has shown resilience. Over the past five years, the company has doubled its trailing twelve-month sales to reach $12.6 billion, generating $487 million in free cash flow. Such figures suggest that behind the scenes, the company is performing well, even if current market sentiment is dismal.
Chewy’s recent operational performance further underscores its potential for recovery. According to the latest quarterly report, the company boasts over 21 million active customers, marking a 4.9% increase year-over-year and an addition of 250,000 customers from the previous quarter. Additionally, Chewy has excelled in customer retention, with approximately 84% of net sales derived from autoship orders. These recurring deliveries of essential items streamline the shopping experience for customers and enhance loyalty, reducing the likelihood of them turning to competitors.
As for its market position, Chewy remains vigilant in the face of competition from larger retailers like Walmart and Amazon. The recent departure of its CFO in May sent ripples through the market, but analysts are optimistic about Chewy’s future. Currently, the stock trades at about 15 times the earnings estimates for 2025, presenting an attractive valuation relative to its expected earnings growth of 18% over the next few years.
In summary, although Chewy’s stock has faced significant setbacks, its robust business fundamentals and customer loyalty metrics suggest the potential for a turnaround. Investors may find that the current stock price presents an opportunity for long-term gains, even if the path ahead may encounter some hurdles. As the pet industry continues to thrive, Chewy remains well-positioned to capitalize on the ongoing demand for pet products and services.
