Chewy (CHWY 13.85%) was a huge beneficiary of the pandemic, which forced consumers to spend more time at home. Its revenue and stock price surged in 2020. But decelerating growth, coupled with skepticism toward unprofitable growth businesses, pushed investors out of the stock. The latest financial release also disappointed the market. 

With its shares down 71% from their all-time high, is it time to buy Chewy stock? Let's take a closer look at this pet-focused e-commerce business. 

feeding pet dog.

Image source: Getty Images.

Chewy posted solid results in fiscal 2022 

While nowhere near the 40%-plus sales growth it posted during the depths of the coronavirus pandemic, Chewy's top line still expanded at a respectable clip this past year. Revenue for its fiscal 2022, ended Jan. 29, was up 13.6% year over year to $10.1 billion, with growth consistently in the low-teens range in each 12-week period of the year. And the company's gross margin expanded to 28% thanks to rising prices and supply chain efficiencies. 

That pricing power was really important in the latest fiscal quarter. That's because there was a noticeable negative piece of data from the latest earnings report. As of Jan. 29, Chewy's active customer count was 20.4 million, down 1.2% versus the end of fiscal 2021. However, net sales per active customer surged 15.1% year over year to $495. Getting more value from consumers is clearly a good sign, especially at a time when inflation is hurting spending. 

CEO Sumit Singh called out the company's market share gains and its resilience in the face of macro headwinds. That might be one of the most attractive characteristics about Chewy from an investment perspective. The $130 billion U.S. pet industry is viewed as being recession-proof, with so-called pet parents continuing to spend on their furry friends even in tougher times. In Chewy's case, it benefits even more because non-discretionary goods, like consumables and healthcare, represented 82% of overall sales in the most recent fiscal quarter. These purchases can be stickier.  

With a fast-growing company like Chewy that has been investing heavily in achieving growth, profits have been elusive. But to its credit, the business generated $49 million in net income in fiscal 2022, maybe a harbinger of improved profitability in the years to come. What's more, free cash flow totaled $119 million last fiscal year, up significantly from $9 million in fiscal 2021. These are trends that are heading in the right direction. 

Always consider the valuation 

Chewy appears to be a business on solid footing, successfully navigating macro headwinds and still posting solid gains last year. This should please shareholders. But it's also important to take into account the stock's valuation before being able to figure out if this is a company to buy for your portfolio. 

Its shares are down about 70% from their peak. And more recently, over the past three months, they are down 20%. As a result of this continued selling pressure, the stock now trades at a price-to-sales (P/S) multiple of under 1.5. This is about half the average historical P/S ratio of the stock. And it's not far from the all-time low valuation of 1.1. This attractive setup presents investors with a potential buying opportunity. 

It looks even better when considering that management expects Chewy's revenue to increase between 10% and 12% in fiscal 2023. Because Autoship customer sales, which represent the company's subscription program, accounted for 73% of total net sales last year, the leadership team has valuable visibility into demand trends. 

And over the next five years, consensus analyst estimates call for sales to rise at a compound annual rate of 12.5%, with diluted earnings per share growing at a 76% annualized clip between fiscal 2022 and 2027. These forecasts should always be taken with a grain of salt. But if these targets come at least close to fruition, buying Chewy stock now will look like a smart financial decision.