Chewy (CHWY 0.83%) shares trounced the market on Monday, gaining 10% by 3 p.m. ET, compared to the 2.5% pop in the S&P 500. The pet-focused e-commerce company's stock remains in negative territory so far this year, though, down 38% compared to the wider market's 23% decline.
Monday's broad market rally played the central role in Chewy's stock price jump as investors became a bit less worried about an impending pullback in consumer spending.
Encouraging news from Bank of America had investors feeling less pessimistic about consumer spending trends heading into the holiday shopping season. Spending was "strong, although slower growing," CEO Brian Moynihan said Monday morning after the bank reported rising client balances and 8% higher overall revenue in the third quarter.
Chewy's stock had been pressured by investors' concerns about a pending recession. Management cited a volatile selling environment back in August when it reported a 13% sales increase for its fiscal second quarter.
Monday's news helped convince investors that the economic environment might be stronger than they had feared. As a result, previously hard-hit stocks like Chewy's were lifted back up.
Chewy has many attractive qualities as an investment. The company is winning market share in an industry that has tended to grow over time, even through recessions. Customers are thrilled with its pet supply services, as demonstrated by the fact that most of its sales occur through its subscription-type plans. The company is profitable, too.
All of those factors help explain why Chewy's stock might beat the market on an upswing day like Monday. But they also point to the potential for solid long-term gains for investors willing to hold the stock.
Yes, Chewy shares will be volatile as investors worry that the company faces a growth slowdown following its big sales gains in earlier phases of the pandemic. But solid returns are still likely for this growth stock, even after Monday's short-term spike.