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Why Chewy Stock Is Down This Year

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The pet supplies retailer has done well during the pandemic, but a variety of factors have weighed on it this year.

Chewy (CHWY -5.77%) has been a big winner during the pandemic, but the stock is actually down this year. A combination of a sell-off in growth stocks and deceleration in its growth rate has pushed the stock lower this year.

In this episode of "Upgrade or Topgrade" recorded on Oct. 15, Fool contributors Jeremy Bowman and Parkev Tatevosian and Millionacres Editor Deidre Woollard discuss the pressure on Chewy and how the stock is positioned for the long term.

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Deidre Woollard: Why doesn't the market like this stock right now? Is it just everything was down for a little while or do you think that there's something else going on here?

Jeremy Bowman: I'll weigh in for a second. I think there's a combination of factors with Chewy. I think growth stocks have been hit. There have been some noise with interest rates and just general concerns about a market pullback, and then we have these pet stocks-I mean Chewy benefited from two booms during the pandemic. There was pet food and pet products, and then there was e-commerce also. I think there's this realization that we saw some pretty hyper growth from the company last year. That's going to cool off, and we're reaching more of a steady-state going forward.

Woollard: I think that makes sense. Before we move on to talk about some of the other pet stocks, I want just to bring up this one thing I think is interesting with Chewy. I'm not a Chewy investor. I wasn't, in the beginning, a big Chewy fan, although Emily Flippen has pretty much sold me on it. But the thing, I think, they're doing that's interesting is the practice hub, which is their marketplace for veterinarians. What's interesting about it is veterinarians can basically choose to list their items on chewy.com. They can set up prices, set up pre-approved prescriptions, prescription food, things like that, and then they earn revenue if the customers placed an order either in their clinic or purchase from them via Chewy. This is really interesting to me because they've got this pet prescriptions product, and that's in use in about 8,000 clinics already around the country, and I feel like this is an area of growth that is really interesting. Combines with the compounding that we talked about earlier.

Parkev Tatevosian: Great point. It's truly, again, following some of the steps that Amazon follows in trying to bring on more third-party sellers on its platform. Interestingly, they're starting this service. This is free for veterinarians to begin with, but I can imagine them trying to monetize it in some way. Maybe not in the near term, but maybe in the medium to longer term.

Woollard: Interesting. That makes me wonder if there would be a way for them going forward even to try to white label it as an app for the clinic or something like that, or maybe partner with clinics because I think there's more optionality there than I think they've really explored yet and that's one of the things that I think is the challenge for them because it seems like they're a company that really was doing one thing and is now trying to get into some other areas.

Parkev Tatevosian owns shares of Chewy, Inc. The Motley Fool owns shares of and recommends Chewy, Inc. The Motley Fool has a disclosure policy.

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