Chewy (NYSE:CHWY) stock experienced massive growth as the company drove online sales for pet supplies in 2020. But since February of last year, the stock has trended steadily lower.

However, Chewy has not only continued to increase revenue but has come close to turning a profit. Given the discounted stock price, its current value proposition deserves a closer look.

A dog rests comfortably in a caretaker's arms.

Image source: Getty Images.

Competitive advantage and Chewy stock

Chewy may not appear to offer a significant competitive advantage at first glance. Indeed, it faces competition from PetSmart, Petco, and other offline retailers.

Nonetheless, besides stocking over 2,000 brands, Chewy also emphasizes personalized service. This includes a 100% unconditional satisfaction guaranteed policy and the availability of 24/7 customer service. The service even goes so far as sending handwritten cards to new customers and flowers to customers who have lost a pet. Such efforts can appeal to customers put off by the more transactional approach of Amazon or any of Chewy's offline peers.

Unfortunately for investors, this advantage has not always helped Chewy stock. Over the last two years, Chewy's prospects have risen and fallen with the pandemic. Chewy stock surged in 2020 as the pandemic left consumers with fewer options to shop offline.

Nonetheless, as shoppers returned to their pre-pandemic shopping patterns, investors became concerned about growth and sold the stock. Chewy has now fallen by more than 55% from its peak last February.

How this advantage affects financials

Admittedly, the changing shopping patterns slowed sales growth. In the first three quarters of 2020, net sales increased by 46% compared with the first nine months of 2019. By 2021, sales in the first nine months of the year had grown to $6.5 billion, but that represented 27% growth compared with the same period in 2020.

Nonetheless, the company kept operating expenses growing at a slower pace than revenue in the first nine months of 2021 compared to the same time in 2020. This resulted in a loss of $10 million for the first nine months in 2021, up from the $113 million loss during the same time in 2020.

Management also expects revenue growth to slow further. It predicts full-year 2021 revenue of between $8.90 billion and $8.94 billion, a 25% year-over-year rate of increase at the midpoint. Also, while Chewy did not comment on 2022 numbers, analysts expect the company to increase revenue by 19% year over year.

Still, thanks to the falling stock price and rising revenue, the price-to-sales (P/S) ratio now stands at 2.5, its lowest level since mid-2020. This is down from a P/S ratio of about seven one year ago, boosting the case to invest in Chewy for 2022. It also makes the company significantly cheaper than Amazon, which trades at 3.7 times sales.

Should I consider Chewy?

Chewy's downside appears limited at current levels. Its emphasis on quality and customer experiences should keep revenue rising by double-digits for the foreseeable future. Indeed, growth investors will not like that revenue will increase at a slower rate. However, with a discounted stock price, a low sales multiple, and profitability within striking distance, this internet and direct marketing retail stock looks like an increasingly attractive bargain.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.