Pets.com stock from the early 2000s was the poster child for stocks that soared on hype and then tanked and disappeared as part of the dot-com crash. Evidently, consumers weren't ready to embrace pet-supply e-commerce.

While Pets.com may have been ahead of its time, online retailer Chewy (CHWY 0.14%) -- which spun off from PetSmart into a public entity in 2020 -- has had some success, in part thanks to a pandemic-driven turn toward more use of e-commerce.

An assortment of pet products

Image source: Getty Images.

While Chewy stock isn't quite following the same trajectory that Pets.com did, there has been an unmistakable boom and bust movement in the share price since its IPO in June 2019. Still, a share price recovery could be in the cards since Chewy's revenue growth is notable -- and some "dogged" determination by management to expand the company's business model just might tilt Chewy toward a profitable fiscal profile.

Chewy's top-line growth remains strong

To determine if Chewy is suitable as a value play, prospective investors must weigh the company's positives versus one glaring negative.

On the plus side, Chewy's balance sheet appears to be improving as the company's cash and cash equivalents rose over the first three quarters of the year (ending Oct. 31). Furthermore, in the same time frame, Chewy's total assets increased from $1.7 million to $2.2 million -- but then, the company's total liabilities almost exactly mirrored those numbers.

The star attraction for the bulls, however, is Chewy's top-line trajectory. The company's third-quarter 2021 net sales of $2.21 billion demonstrated 24.1% year-over-year improvement, while the quarterly gross margin of 26.4% indicated year-over-year expansion of 90 basis points -- not too shabby.

The big drawback for Chewy

But while Chewy's seeing sales growth and has a strong position in its niche market, the online retailer still isn't profitable on a bottom-line basis. Chewy's $32.2 million net loss in the third quarter isn't much of an improvement from the $32.8 million net loss in Q3 2020. On the other hand, the company's $10.2 million net loss for the first three quarters of 2021 combined demonstrates vast progress compared to the net loss of $113.5 million in the first three quarters of 2020.

Still, the lack of net profitability is bothersome to some investors. CEO Sumit Singh blamed Chewy's third-quarter negative earnings results on ongoing supply chain disruptions, labor shortages, and higher inflation. Chewy listed $93.3 million worth of expenses in the "Inventories" category during the first three quarters combined, which certainly reflects an inflationary economy.

Chewy is moving beyond toys and treats

One way to offset the increasing cost of inventory is to generate income from sources that are far less affected by things like supply availability, shipping, sorting, or labor costs. That's partly why Chewy recently announced a partnership with pet medical insurance provider Trupanion (TRUP 3.58%). Through this partnership, Chewy will be able to offer its online customers (or more precisely, their pets) preventative care wellness plans and comprehensive insurance plans for accidents, illnesses, and chronic conditions. In this care model, Chewy will use Trupanion's software to pay veterinarians directly, thereby (hopefully) reducing out-of-pocket expenses for the pets' parents.

At the very least, the Trupanion collaboration should diversify Chewy's business model. Still, it remains to be seen whether Chewy's customer base of 20 million pet parents will opt to sign up for more than pet products and food.

Are investors barking up the wrong tree?

Investors seeking businesses that can circumvent macro-level issues like inflation and supply chain bottlenecks probably won't find a solution in Chewy.

For the time being at least, food, toys, and treats are still Chewy's bread and butter. But diversifying into pet medical care could help the company steer away from the global issues that seem to be dogging so many product suppliers today.

Chewy is still generating significant sales growth the company's earnings loss are at least under control even if not shrinking at a pace every investor wants. This is still a relatively young company focused more on growth than profits at the moment, so patience is needed. In the final analysis, Chewy's investors must remain risk-tolerant e-commerce bulls to the core.