What happened

Chewy (CHWY -1.51%) investors were beating the market early Monday as the stock gained 4% by 10:30 a.m. ET, compared to a 0.1% uptick in the S&P 500 index. The stock then settled back down to a 1% uptick by 11 a.m. 

The pet supply specialist's stock remains in negative territory so far in 2022, down roughly 25%. Yet those losses have been cut in half since early October.

Monday's uptick continues that bullish trend as investors gain more confidence in Chewy's business following an upbeat Q3 earnings report late last week.

So what

Chewy said on Thursday that sales trends accelerated in the selling period that ended in late October. The company also notched increasing profit margins as it raised prices to offset increased costs. These successes spurred an immediate jump in the stock last week.

Several Wall Street investment firms also upgraded the stock on Friday following the report. Monday's price movement fit right in with that increasing bullish attitude, which reflects the opinion that Chewy is relatively recession resistant thanks to its focus on staple pet products like food.

Now what

Investors have a lot to watch in Chewy's business both in 2023 and beyond. Management has a good handle on profitability and market share trends, for one, which are both headed in the right direction despite increased stresses on the e-commerce industry. Chewy is also targeting new revenue streams like wellness and insurance, including through the recent launch of a company-owned brand of pet supplements.

The next few quarters might be rocky for the business, even though most of Chewy's sales come from staples rather than discretionary purchases. The stock's 2022 decline has been driven by that recession fear.

But its longer-term outlook is bright, especially if the company can post another year of market share growth in 2023, along with steadily expanding profit margins. Those are the key metrics worth watching as Chewy aims to become more of a growth stock.