Equity investors are grappling with numerous anxieties, particularly since the onset of the year brought concerns about the state of the economy. The ongoing Iran war has intensified these worries, leading to heightened anxiety over its potential economic repercussions. Of immediate concern to investors is the rapid rise in oil prices and its likely impact on consumer discretionary spending—this is especially troubling given that many consumers are already facing challenges from persistent inflation.
Despite the challenges, the stock market has shown signs of recovery from its earlier declines, with large-cap stocks, as indicated by the S&P 500 index, seeing a modest gain of 1.7% as of mid-April. This performance, although not remarkable, provides investors with a strategic opportunity to consider growth stocks, which typically underperform during economic downturns. Indeed, the S&P 500 Growth Index has lagged further, registering an increase of only 1.2%.
A company that has emerged as a potential growth opportunity is Chewy (CHWY), especially noted for its performance during the pandemic when demand for pet products surged. The online pet supplies retailer saw substantial revenue growth during COVID-19, benefiting from a surge in pet adoptions. Although it may not reach those pandemic-era growth rates again, Chewy’s long-term growth outlook remains promising.
The company is actively increasing its customer base, ending fiscal 2025 with 21.3 million active clients—up 4% from the previous year. These active customers are defined by Chewy as those who have purchased at least once in the past year. A significant driver of Chewy’s stability and revenue predictability is its Autoship program, which allows customers to automate their purchases for convenience. Revenue from Autoship customers rose 11.8% year-over-year, totaling $10.5 billion and comprising 83.3% of sales last year.
In terms of revenue growth, Chewy reported an 8.3% increase, adjusted for a consistent 52-week period, culminating on February 1. This growing customer base positions Chewy well to expand its product offerings, particularly in the healthcare sector. The company has broadened its healthcare services by offering prescription medications, telehealth, outsourcing services to veterinarians, and pet insurance. Additionally, Chewy has opened clinics, adding 10 in the previous year to reach a total of 18, and it recently announced plans to acquire Modern Animal, which operates 29 clinics expected to contribute an annual $125 million in sales.
Geographically, Chewy has just begun tapping into international markets, initiating offerings in Canada earlier this year.
Despite these growth prospects, investors appear to have overlooked Chewy’s long-term potential, as its stock price has decreased by 21.6% this year. Currently valued at $27.52, Chewy’s shares have experienced a price drop attributed to heightened investor anxiety over growth stocks. The price-to-earnings (P/E) ratio for Chewy has decreased from the upper 60s to 52, still considered high, particularly in comparison to the S&P 500’s P/E multiple of around 30.
Historical data suggests that pet spending tends to remain resilient even during economic downturns; for instance, during the Great Recession from 2008 to 2010, pet expenditures rose by 12% despite an overall decline in consumer spending. Considering the potential for sales growth and the non-cyclical nature of its business, Chewy’s current stock price retreat could present a favorable buying opportunity for investors seeking to capitalize on its long-term growth trajectory.
