Is Chewy Stock a Buy for 2022?

Shares of Chewy (CHWY 0.19%) haven't kept up with the wider market's surge in 2021. That might be setting investors up for great long-term returns from here, though.

In this video from "Beat & Raise," aired on Dec. 10, Fool contributors Rachel Warren and Demitri Kalogeropoulos discuss Chewy stock and outline a few good reasons to like shares at today's prices. 

Demitri Kalogeropoulos: We did get a question about Chewy specific. Vihan says, this is particularly for you, Rachel, but I'll take a first stab at that one if you want to think about it. "With the information you have today on Chewy, would you consider taking a position in Chewy? If you don't own, what if you have another stock that you can mention that, too?" I would say, I'm fairly new I haven't followed Chewy for long. Personally, haven't looked at that. I've seen a whole lot of things that I like in this report. The growth is strong, the market is good. It's got a pretty dominant position, particularly in the e-commerce area. It's positioned really well in a niche of a growing market, which is great. You'd like to see customer engagement numbers going up, which they are. You like to see average spending going up, which they are. You can see, as we talked about earlier, I can imagine that happening for a long time as people spend more money on pet food. I like the recession-resistant part of the stocks.

All those are great factors, plus the fact that the [laughs] share price has gone down a bit, therefore it's on sale, [laughs] which is nice. Like Rachel hit on before, if there's any drawback to it right now, I mean clearly, it's not profitable on a net basis yet, and then gross margin, which you just mentioned, is on the small side. It's hard to imagine right now exactly how profitable Chewy will be over the long term.

That's the big multibillion-dollar question because, and that's going to depend on that gross margin number. I was just doing a comparison and this obviously is not a very apples-to-apples comparison, but Tractor Supply (TSCO 2.20%), which sells a whole lot of pet and animal products, and they have a massive digital space, but also a really big retailing side -- their gross profit margin is somewhere in that 35% range. So 5, 6, call it 8 percentage points higher than Chewy is right now. But Tractor Supply have been doing this for longer, and I think has a bigger revenue base so that makes sense. But if you can see a world where Chewy gets up to that level, then they could easily be very profitable. And I think it could be a great long-term investment in that scenario. But curious what your thoughts are.

Rachel Warren: I know those are great thoughts. I honestly agree with everything you said. I can't give stock-buying advice. I would save my personal take on this company right now: I'm not currently a shareowner. I've been talking about it a lot this week, so I couldn't buy it just yet anyway if I wanted to. But I have gotten to know the company a lot better over the past week, especially as I've been studying it for these various shows, and I am really interested in it. This is something I said Monday, and we did the deep dive on the company. I think if you are a more risk-tolerant investor, a small position, at least for now, in a company like this, balanced out by a portfolio of a broad range of other stocks in different sectors and different market caps, I certainly think it's worth a look.

It's one I'm looking at actually for my portfolio particularly. Not just because it's trading on sale, because we know that share price is not the only metric one should be looking at before you buy, but I think the overall business is strong. I understand some of the concerns about profitability. As I've mentioned, I like the fact that the company is consistently narrowing those net losses. I think that that is notable considering it's a challenging environment for businesses right now. With all the money that it's spending on building up its fulfillment centers and also attracting new talent to staff the company, I think that's worth noting. I definitely think it's one to watch and possibly take a look at for sure.

Demitri Kalogeropoulos: The other thing I would add is, personally if you're a customer of Chewy's, I also feel like that's a really good reason to consider buying the stock. That's my first couple of stocks. were definitely, if you love the business, you love the brand, and you want to be a part-owner in that, I think one of the first I bought [Amazon's (AMZN -2.56%)] Whole Foods was one of my first stocks. I bought Marvel, which ended up getting bought by Disney (DIS 0.16%), and that's how I own Disney. But basically, for the whole reason, I just remember just being impressed with their business and then just being really happy to watch, go to a Marvel movie and just be like, "OK, I own 100 millionth of a percent of that. [laughs] I don't mind paying for the ticket price."

Rachel Warren: Oh, no totally, and the same way when I bought my first stocks, if it wasn't a company that I was a customer of, it was one that I knew really well. I think that's important to note, if you're considering this company, dig into some of the filings, look at some of these reports, and see if that's something that could be a good fit for your personal investing goals.