Chewy's Margin Expansion Indicates Strong Growth Potential
Written by Emily J. Thompson, Senior Investment Analyst
Updated: Feb 22 2024
0mins
Should l Buy CHWY?
Source: SeekingAlpha
Chewy Inc. experienced a decline of 3.33% as it hit a 20-day low, reflecting investor concerns despite positive market trends in the Nasdaq-100 and S&P 500.
The company's recent performance highlights an 8.3% revenue growth through its autoship model, with EBITDA margins increasing to 5.7%. Analysts project further margin expansion of 100 basis points this year, showcasing the attractiveness of Chewy's business model and its potential for profitability growth. This positive outlook contrasts with the stock's current decline, indicating a possible sector rotation as investors reassess their positions in the pet supply market.
Chewy's ability to enhance margins while maintaining revenue growth positions it favorably for future expansion, despite the recent stock price drop. The company's strategic focus on customer service and competitive pricing continues to strengthen its market position.
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Analyst Views on CHWY
Wall Street analysts forecast CHWY stock price to rise
20 Analyst Rating
17 Buy
3 Hold
0 Sell
Strong Buy
Current: 23.670
Low
42.00
Averages
47.06
High
52.00
Current: 23.670
Low
42.00
Averages
47.06
High
52.00
About CHWY
Chewy, Inc. is an e-commerce business geared toward pet products and services. The Company’s products consist of pet food and treats, pet supplies and pet medications, other pet-health products, and pet services. It serves its customers through its retail websites, and its mobile applications and focuses on delivering customer service, competitive prices, convenience, including Chewy’s Autoship subscription program, and a range of pet food, treats and supplies, and pet healthcare products and services. It partners with approximately 3,200 of the brands in the pet industry, and it creates and offers its own private brands. It owns a number of trademark registrations and applications in the United States and in foreign jurisdictions. These trademarks include American Journey, Blue Box Event, Careplus, Chewy, Chewy.com, Chewy Vet Care, Dr. Lyon’s, Frisco, Goody Box, Onguard, PetMD, PracticeHub, Tiny Tiger, True Acre Farms, Tylee’s, Vibeful, and The Zoo.
About the author
Emily J. Thompson
Emily J. Thompson, a Chartered Financial Analyst (CFA) with 12 years in investment research, graduated with honors from the Wharton School. Specializing in industrial and technology stocks, she provides in-depth analysis for Intellectia’s earnings and market brief reports.
Chewy's Stock Down 25%: A Buying Opportunity
- Stock Decline: Chewy's stock has fallen 25% since the beginning of 2026 and 35% over the past year, raising investor concerns about the company's future; however, the current price near its 52-week low may present a reasonable buying opportunity for long-term investors.
- Profitability Enhancement: Chewy is focusing on expanding its private-label products and health services to improve margins, having opened 18 veterinary clinics and planning to acquire Modern Animal, which will increase its clinic count to 47, thereby enhancing customer retention and repeat purchases.
- Autoship Program: By fiscal year 2025, 84% of Chewy's net sales will come from its autoship program, providing a stable revenue stream that offers a significant competitive advantage in the pet e-commerce sector, with sales and margins improving despite macroeconomic headwinds.
- Market Outlook: Despite facing economic challenges, Chewy's business remains resilient, and as it continues to grow its private label and healthcare services, the company is expected to gradually restore profitability, with the current stock price offering an attractive entry point for investors.
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- Financing Capability: GameStop has a $20 billion financing letter from TD Bank and $9.4 billion in cash, planning to fund the acquisition with a 50% cash and 50% stock split, although this may lead to share dilution risks.
- Cost Savings: The company anticipates achieving $2 billion in cost savings within the first year post-acquisition through reductions in sales and marketing, product development, and corporate overhead, aiming to enhance its competitive position.
- Market Reaction: Despite Cohen's confidence in the acquisition, analysts express skepticism regarding its feasibility, citing fundamentally different business models between the two companies, which may hinder potential synergies and distract both firms in a challenging retail environment.
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Chewy Stock Shows Potential for Value Recovery
- Consistent Sales Growth: Chewy achieved $12.6 billion in net sales for fiscal 2025, reflecting a 6% year-over-year increase that led to a 125% surge in operating income, demonstrating resilience and boosting investor confidence amid market challenges.
- Net Income Fluctuations: The net income of $223 million in fiscal 2025, down from $393 million the previous year, was influenced by a $241 million income tax benefit, highlighting the complexities in financial management and the need for careful analysis of earnings reports.
- Strengthened Competitive Advantage: Chewy has solidified its market position by offering low prices alongside superior customer service, and during the pandemic, it expanded into pharmaceuticals and telehealth services for pets, which could significantly enhance future sales.
- Attractive Valuation: Although Chewy's trailing P/E ratio stands at 50, above the S&P 500 average of 31, analysts project a 9% increase in net sales and a 28% rise in net income for the upcoming fiscal year, resulting in a forward P/E ratio of just 16, indicating strong investment potential.
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Chewy's Stock Valuation Becomes Increasingly Attractive
- Revenue Growth: Chewy reported $12.6 billion in net sales for fiscal 2025, reflecting a 6% year-over-year increase, indicating that the company continues to grow despite market pressures, thereby enhancing its competitive position in the pet supply market.
- Profitability Improvement: Although net income for fiscal 2025 was $223 million, down from $393 million the previous year, a $241 million income tax benefit contributed to a 125% spike in operating income, showcasing the company's potential for profitability.
- Cash Flow Enhancement: Chewy's free cash flow increased by 24% year-over-year to $562 million, indicating improved financial management and the ability to control its destiny, which supports future expansion plans.
- Competitive Advantage: By offering low prices and superior customer service, along with the introduction of pet pharmaceuticals and telehealth services during the pandemic, Chewy has solidified its market position, which is expected to drive sales growth in the future.
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- Coca-Cola Brand Strength: Coca-Cola (KO) leverages its strong brand equity and global marketing strategies, achieving 10% organic revenue growth in Q1, with concentrate sales rising by 8%, and projecting 4% to 5% organic revenue growth and 8% to 9% EPS growth for the year, reflecting robust performance amid market recovery.
- Chewy's Margin Expansion: Online pet retailer Chewy (CHWY) achieved an 8.3% revenue growth through its autoship model, with EBITDA margins increasing to 5.7%, and is projected to expand margins by another 100 basis points this year, with a long-term goal of reaching 10%, showcasing the attractiveness of its business model and profitability growth.
- Defensive Nature of Consumer Staples: The consumer staples sector is viewed as a defensive investment during economic downturns, and while tech stocks attract attention, companies like Philip Morris, Coca-Cola, and Chewy exhibit strong investment value through stable growth and solid financial performance.
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- Coca-Cola's Brand Strength: Coca-Cola (NYSE: KO) achieved 10% organic revenue growth in Q1, with concentrate sales rising 8%, benefiting from the introduction of zero-calorie and prebiotic products, and is projecting 4% to 5% organic revenue growth for the year, highlighting its strong brand influence and market recovery potential.
- Chewy's Margin Expansion: Online pet retailer Chewy (NYSE: CHWY) grew its revenue by 8.3% last year, with EBITDA margins increasing by 90 basis points to 5.7%, and is expected to expand margins by another 100 basis points this year, indicating strong growth and profitability potential in the e-commerce sector.
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- Stock Decline: Chewy's stock has fallen 25% since the beginning of 2026 and 35% over the past year, raising investor concerns about the company's future; however, the current price near its 52-week low may present a reasonable buying opportunity for long-term investors.
- Profitability Enhancement: Chewy is focusing on expanding its private-label products and health services to improve margins, having opened 18 veterinary clinics and planning to acquire Modern Animal, which will increase its clinic count to 47, thereby enhancing customer retention and repeat purchases.
- Autoship Program: By fiscal year 2025, 84% of Chewy's net sales will come from its autoship program, providing a stable revenue stream that offers a significant competitive advantage in the pet e-commerce sector, with sales and margins improving despite macroeconomic headwinds.
- Market Outlook: Despite facing economic challenges, Chewy's business remains resilient, and as it continues to grow its private label and healthcare services, the company is expected to gradually restore profitability, with the current stock price offering an attractive entry point for investors.
See More
GameStop Makes Unsolicited Offer to Acquire eBay
- Acquisition Proposal: GameStop announced an unsolicited offer to acquire eBay at $125 per share, valuing the deal at approximately $55.5 billion with a 20% premium over eBay's last closing price, yet the market reacted negatively with GameStop's stock dropping 8% this week.
- Financing Capability: GameStop has a $20 billion financing letter from TD Bank and $9.4 billion in cash, planning to fund the acquisition with a 50% cash and 50% stock split, although this may lead to share dilution risks.
- Cost Savings: The company anticipates achieving $2 billion in cost savings within the first year post-acquisition through reductions in sales and marketing, product development, and corporate overhead, aiming to enhance its competitive position.
- Market Reaction: Despite Cohen's confidence in the acquisition, analysts express skepticism regarding its feasibility, citing fundamentally different business models between the two companies, which may hinder potential synergies and distract both firms in a challenging retail environment.
See More
Chewy Stock Shows Potential for Value Recovery
- Consistent Sales Growth: Chewy achieved $12.6 billion in net sales for fiscal 2025, reflecting a 6% year-over-year increase that led to a 125% surge in operating income, demonstrating resilience and boosting investor confidence amid market challenges.
- Net Income Fluctuations: The net income of $223 million in fiscal 2025, down from $393 million the previous year, was influenced by a $241 million income tax benefit, highlighting the complexities in financial management and the need for careful analysis of earnings reports.
- Strengthened Competitive Advantage: Chewy has solidified its market position by offering low prices alongside superior customer service, and during the pandemic, it expanded into pharmaceuticals and telehealth services for pets, which could significantly enhance future sales.
- Attractive Valuation: Although Chewy's trailing P/E ratio stands at 50, above the S&P 500 average of 31, analysts project a 9% increase in net sales and a 28% rise in net income for the upcoming fiscal year, resulting in a forward P/E ratio of just 16, indicating strong investment potential.
See More
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- Revenue Growth: Chewy reported $12.6 billion in net sales for fiscal 2025, reflecting a 6% year-over-year increase, indicating that the company continues to grow despite market pressures, thereby enhancing its competitive position in the pet supply market.
- Profitability Improvement: Although net income for fiscal 2025 was $223 million, down from $393 million the previous year, a $241 million income tax benefit contributed to a 125% spike in operating income, showcasing the company's potential for profitability.
- Cash Flow Enhancement: Chewy's free cash flow increased by 24% year-over-year to $562 million, indicating improved financial management and the ability to control its destiny, which supports future expansion plans.
- Competitive Advantage: By offering low prices and superior customer service, along with the introduction of pet pharmaceuticals and telehealth services during the pandemic, Chewy has solidified its market position, which is expected to drive sales growth in the future.
See More
Investment Opportunities in Consumer Staples Sector
- Philip Morris Growth Potential: Despite declining cigarette volumes, Philip Morris International (PM) demonstrates strong pricing power that drives sales growth, with an expected organic revenue increase of 5% to 7% in 2023, while its smoke-free products like Iqos and Zyn saw market sales growth of 11% and 10%, respectively, indicating future growth potential.
- Coca-Cola Brand Strength: Coca-Cola (KO) leverages its strong brand equity and global marketing strategies, achieving 10% organic revenue growth in Q1, with concentrate sales rising by 8%, and projecting 4% to 5% organic revenue growth and 8% to 9% EPS growth for the year, reflecting robust performance amid market recovery.
- Chewy's Margin Expansion: Online pet retailer Chewy (CHWY) achieved an 8.3% revenue growth through its autoship model, with EBITDA margins increasing to 5.7%, and is projected to expand margins by another 100 basis points this year, with a long-term goal of reaching 10%, showcasing the attractiveness of its business model and profitability growth.
- Defensive Nature of Consumer Staples: The consumer staples sector is viewed as a defensive investment during economic downturns, and while tech stocks attract attention, companies like Philip Morris, Coca-Cola, and Chewy exhibit strong investment value through stable growth and solid financial performance.
See More
Solid Growth in Consumer Staples Sector
- Philip Morris Growth Potential: Despite declining cigarette volumes, Philip Morris International (NYSE: PM) demonstrates strong pricing power that drives sales growth, with an expected organic revenue increase of 5% to 7% this year, while its smoke-free products like Iqos and Zyn are also contributing to growth, achieving 11% and 10% sales growth respectively, showcasing the company's competitive advantage in its transformation.
- Coca-Cola's Brand Strength: Coca-Cola (NYSE: KO) achieved 10% organic revenue growth in Q1, with concentrate sales rising 8%, benefiting from the introduction of zero-calorie and prebiotic products, and is projecting 4% to 5% organic revenue growth for the year, highlighting its strong brand influence and market recovery potential.
- Chewy's Margin Expansion: Online pet retailer Chewy (NYSE: CHWY) grew its revenue by 8.3% last year, with EBITDA margins increasing by 90 basis points to 5.7%, and is expected to expand margins by another 100 basis points this year, indicating strong growth and profitability potential in the e-commerce sector.
- Investment Opportunities in Consumer Staples: While consumer staples stocks may not attract as much attention as tech stocks, their stable growth and recession-resistant characteristics make them ideal for investors, especially in the context of increasing economic uncertainty, prompting a focus on these robust business models.
See More
