Most stocks have faced choppy waters over the past year or more. But growth shares have been hit particularly hard. Since the start of 2022, the Russell 3000 Growth Index has dropped by 14.4% versus a loss of 8.9% for the Russell 3000 Value Index.

Researching individual companies in this volatile climate can prove lucrative for patient investors. Shares of the growth stock Chewy (CHWY -1.42%) have dropped by more than 38% during this period. Does this represent a buying opportunity or a warning of worse to come?

To answer that question, it's time to better understand Chewy's business and prospects.

Someone looking at a tablet and papers.

Image source: Getty Images.

Loyal and profitable customers

Chewy's growth in active customers accelerated during the pandemic as homebound people rushed out to adopt pets. In its fiscal 2020, which ended on Jan. 31, 2021, the number of active customers grew nearly 43% to 19.2 million, driving sales 47.4% higher to $7.1 billion.

Those were extraordinary times, and keeping up that growth rate was unsustainable. Last year, the number of active customers fell 1.2% to 20.4 million. But management was able to generate a 13.2% sales increase to $10.1%. It accomplished this thanks to a loyal customer base who spent more; sales per active customer increased by over 15% to $495.

In the most recent quarter, ended April 30, the number of active customers was essentially flat from year end at 20.4 million. But sales per customer continued climbing, reaching $512.

And its Autoship, a subscription service that automatically reorders goods like pet foods for fast and convenient delivery, illustrates Chewy's customer loyalty. These sales grew by 18.6% from a year ago and now account for nearly three-quarters of total revenue, up from 72.2% last year.

Unlike many growth companies, Chewy has become profitable. In the first quarter, it earned $22.2 million under generally accepted accounting principles (GAAP), up more than 20% year over year.

An international opportunity

Management wants to expand outside the United States. It has also built out its cloud technology, so its platform will work well without having to make significant investments. Chewy doesn't expect to make major additional capital expenditures until at least the end of 2024.

The company has chosen Canada as its first international destination, noting that country's similarities to the U.S., like a large and growing market. The hope is that its convenience and strong customer service should duplicate its success internationally.

It's recession resistant

Many economists have been predicting a recession will occur in the U.S. later this year. While some have pushed back their timeline, an economic slowdown should come at some point.

But the business of providing pet products, supplies, and prescriptions makes Chewy resilient in tougher economies. Pets are treated like family, so spending on them is unlikely to be cut back much.

For example, during the severe recession from 2008 to 2010, overall U.S. consumer spending fell, but spending on pets rose by 12%, according to the American Pet Products Association. Despite the uncertainty created by the pandemic, only 5% of people said they were spending less on their dogs and cats.

Chewy's declining share price has also created a more-favorable valuation. The stock currently trades at a price-to-sales ratio (P/S) of 1.5. That's down from over 2 last year -- and in early 2021, the stock's P/S multiple was over 7.

With loyal customers, profit increases, growth opportunities, and a better stock valuation, Chewy presents a compelling opportunity.