What happened
Investors in Chewy (CHWY -0.64%) had a good day on Thursday as their shares gained 4% by 1:30 p.m. ET, compared to a 1.8% increase in the S&P 500. That surge erased a small part of the e-commerce specialist's recent declines, though, and shares remain lower by nearly 40% so far in 2022.
The rally was powered by a rebound in some of the hardest-hit tech stocks as Wall Street became less fearful about a recession in 2023.
So what
The key factor pushing Chewy's shares higher was general strength in the tech sector. The Nasdaq Index jumped more than 2% by early afternoon, and that increase lifted many growth stocks that had been sold off through most of the year .
Chewy's e-commerce focus means its shares tend to move along with that tech segment, even though its business isn't especially sensitive to slowing consumer spending. Sales growth has held up well through late 2022, for example, and the company has posted rising profit margins even as many e-commerce peers are seeing declines.
Now what
Chewy reported only the slightest growth in its customer base in the third quarter, and that's a metric investors will want to watch closely in the new year. Its best path toward sustainable sales gains involves a growing list of customers who spend steadily more on its pet products and services.
Looking further ahead, the company is pushing into new growth lines such as pet wellness and healthcare. But its more immediate challenge is to navigate through what could be slowing shopper spending in 2023. Most of Chewy's sales are in the pet essentials niche, and most of its customers are committed to automatic shipments.
These factors suggest the company would fare well through a recession, which is a normal part of the economic cycle. That's why Chewy stock belongs on growth investors' watch lists, if not in their portfolios, right now.
