Is It Time to Buy Chewy Stock?

Chewy Stock NYSE:CHWY

Chewy Stock (NYSE:CHWY)

Pet supplies are one of the few consumer goods that do well, even in bad economic times. When times are tough, individuals often make significant adjustments to their shopping budgets. Contrarily, they are not as likely to suddenly change their pet’s eating habits.

Despite healthy year-to-date sales growth through the beginning of summer, Chewy stock has fallen farther than the market this year. Let’s see whether the online retail giant is presented with an excellent chance to make a purchase during this downturn.

Gaining Market Share

There were no red flags in Chewy (NYSE:CHWY) most recent operational report that may indicate an impending precipitous reduction in demand. Naturally, sales growth stagnated. Chewy’s second-quarter sales increased by 13%, whereas analysts had predicted a 27% increase by the middle of 2021.

However, Chewy (NYSE:CHWY) numbers also show the kind of stability you’d expect from a company that can weather a downturn in the economy. Its subscription service, for instance, accounted for almost 75% of total revenue. In a conference call at the end of August, management emphasized that the company’s highly engaged client base maintained spending on vital pet products. CEO Sumit Singh attributed Chewy’s recent market share growth to the company’s “unique structural advantages in the present climate.”

Growing Financial Success

Regarding business success, Chewy (NYSE:CHWY) is in a league of its own. This store performs better than its rivals, including numerous e-commerce experts, who have recently posted quarterly net losses. In Q2, the gross profit margin increased by 0.6 percentage points, and the adjusted net profit margin also increased.

Thanks mainly to higher pricing, Chewy’s adjusted profitability increased from 2.3% of sales in the first half of fiscal 2022 to 3% in the second. Given the company’s ability to raise prices and its track record of expanding its market share, investors may expect healthy profits over the long term.

Should You Wait to Make a Purchase, or Do It Now?

For Chewy (NYSE:CHWY), it hasn’t been all roses. As the pet adoption rate returns to more typical levels in 2022, the firm is gaining fewer new clients. The Chewy stock price increase from 2019 to 2021 represented the opinion of many shareholders that the epidemic increase in pet ownership rates was likely to be sustained. Because that didn’t occur, we’ve had to make a change, and now sales are just slightly higher from where they were.

Investors are staying away from the stock primarily because of the downturn. Chewy stock may enjoy revenue growth of 10% or less for the next several quarters instead of the 20% they’ve been used to.

However, if investors wait for the stock’s brief hangover to subside, they may lose out on its subsequent comeback. Instead, you should consider investing in Chewy stock for the long haul, not just the next few quarters.

The company’s steady, highly lucrative operations provide a vital buffer against the risk of a severe recession emerging until 2023. Chewy (NYSE:CHWY) is adept at capturing a more significant proportion of the market in various contexts. Therefore it is conceivable that it would reemerge from a downturn in a stronger position within the market.

Regardless, the pet supplies market, which accounts for around 80% of the company’s revenue, is not vulnerable to the general decline in consumer spending. Therefore, Chewy stock seems to be among the more appealing e-commerce businesses to hold in your portfolio during the uncertainty of 2022 and beyond.

Featured Image-  Megapixl @ Timonschneider

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About the author: I'm a financial journalist with more than 1.5 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.