Shares of Chewy (CHWY -6.07%) have shed 54% of their value in 2022 amid the stock market sell-off as investors pressed the panic button on account of macroeconomic headwinds and the company's poor run of results in recent quarters.

The online retailer of pet products and supplies is grappling with slowing growth thanks to supply-chain disruptions that have led to a loss of sales as well as an increase in costs that have hurt margins and the bottom line.

Chewy, however, is operating in a fast-growing market that seems set for growth over the long run, driven by an increase in the number of people shopping online for pet products, supplies, and other services such as medical consultations.

It would be a good idea for investors to take a closer look at Chewy before it releases its fiscal 2022 first-quarter earnings report on June 1. The stock's dirt-cheap valuation and its long-term growth potential make it an interesting candidate for investors looking to add a value play to their portfolios.

Let's see what's expected of Chewy and why investors should focus on the bigger picture and consider accumulating the stock despite the near-term headwinds.

Dachshund sleeping with an eye mask.

Image source: Getty Images.

Chewy could spring a surprise this earnings season

The pet food purveyer has missed Wall Street's earnings estimate in each of the last three quarters, posting a bigger loss than analysts were expecting. Higher shipping costs and constrained labor availability have been the company's Achilles heel, while higher-than-usual out-of-stock inventory levels have weighed on its top line.

Chewy had delivered 24% revenue growth in fiscal 2021 to $8.9 billion despite these challenges. This seems even more impressive considering that the company was coming off a solid fiscal 2020 when its revenue increased 47%. However, Chewy expects its revenue to land between $2.4 billion and $2.43 billion in fiscal Q1, which would be an increase of 12% to 14% over the year-ago quarter and a deceleration from the rapid growth the company has been clocking over the past couple of years.

Analysts are expecting $2.42 billion in revenue from Chewy, which is in line with the company's guidance range. All eyes, however, will be on the bottom-line performance. The company is expected to post a loss of $0.13 per share as compared to a profit of $0.09 per share in the prior-year period. It remains to be seen if Chewy is able to buck the trend of posting wider-than-anticipated losses this time, but management's comments on the company's March earnings conference call indicate that a positive surprise may be in the cards.

CEO Sumit Singh had remarked on the conference call that "near-term pressures on gross margin likely peaked in Q4, and we are already seeing signs of recovery in our current Q1 quarter." He also added that Chewy's gross margin had improved in February, which was the first month of the fiscal second quarter. So don't be surprised to see Chewy deliver a better-than-expected bottom-line performance when it releases its results.

Savvy investors, however, should focus on the bigger picture as the near-term headwinds that Chewy faces should eventually pave the way for long-term gains given its influence in the fast-growing online pet retail space.

Impressive long-term gains could be in the cards

Market research provider Packaged Facts estimates that the U.S. pet retail industry was worth $123 billion in 2021. The online channel accounted for 37% of pet food sales last year, and it is estimated that it will produce 55% of overall pet food sales in the U.S. by 2025. This points toward the growing influence of e-commerce in the pet retail space and means that Chewy's addressable market is set to grow at a nice pace.

Chewy is one of the dominant players in the online pet retail market with an estimated share of 41% last year, according to a third-party estimate. So the company is well-placed to make the most of the incremental revenue opportunity that the increased adoption of online shopping in the pet retail space is going to create.

This explains why analysts are expecting massive bottom-line improvements from Chewy over the long run. Its earnings are forecast to clock a compound annual growth rate of 267% for the next five years.

Given that Chewy is trading at 1.2 times sales right now, which is a sharp discount to the S&P 500's multiple of 2.6, accumulating this e-commerce stock while it is still down could turn out to be a prudent, long-term move.