When looking for investment opportunities, the stocks that have growth potential and lasting resilience are often the ones that warrant further consideration. Amidst the dynamic ebb and flow of the market, e-commerce upstart Chewy (CHWY 2.99%) is one of these opportunities and might well be a contender for investors seeking a "no-brainer" bargain buy.
Chewy is working to build a reputation for convenience with pet parents, and investors have shown some excitement over its potential at various points in its five-year public existence. Share prices hover around $28 at the moment, but were trending closer to $50 earlier this year and topped $120 in early 2021. The volatility in the price is related more to general market worries about tech growth stocks in a high interest-rate environment than it is to how the business is performing.
Going forward, some wonder whether Chewy's recent movements and strategic positioning make it a compelling investment option given its bargain price.
Chewy's growth remains steady amid market challenges
In a market characterized by volatility, Chewy's business has managed to keep its growth trajectory intact. The first-quarter results (for the quarter ending April 30) underscore this stability, with net sales surging 14.7% year over year to $2.78 billion. A robust gross margin expansion of 90 basis points to 28.4% points to Chewy's adeptness at managing its financials well in challenging times.
CHWY Revenue (Quarterly) data by YCharts.
Chewy management knows the stock experienced a heyday during the early part of the pandemic as pet parents turned online to attain their pet supplies and the market got overexcited by what it could mean for the company. Management accepts that time is past and its potential customers are able to get out and about better now. The growth experienced during that period helped position Chewy for the future. It also showcases what the stock can do as the company continues to grow and expand its market.
The pet provider uses a consumer-centric approach
Chewy's success isn't just driven by the pet supply niche; it's fueled by a commitment to delivering a customer-centric online shopping experience. The company's deep understanding of its customer base, which now exceeds 20 million, resulted in an increasing net sales per active customer (NSPAC), reaching a noteworthy $512 in the first quarter, marking a 14.8% increase from last year.
Moreover, the strong penetration of its Autoship subscription service, responsible for 74.7% of total net sales, exemplifies the brand's ability to nurture long-term customer loyalty and recurring revenue streams. Autoship experienced surprising growth during the first quarter, gaining 18.6% over the previous year. Customers using the service no longer have to place orders, but can just wait for Chewy fulfillment at the desired times.
Chewy's foray into the world of pet insurance and wellness through CarePlus adds another layer of resilience to its portfolio. Recognizing that affordability is a primary concern for pet parents considering insurance, Chewy has partnered with industry leaders Lemonade and Trupanion to offer flexible plans starting at $20 per month. This move addresses the financial aspect of owning a pet and shows Chewy's commitment to supporting pets' well-being.
Chewy stands ready to expand into new territory
Chewy has plans to expand beyond the United States, making its e-commerce services available to Canadian pet parents this fall. The decision to enter the Canadian market aligns with Chewy's long-term growth strategy. The company managed an infrastructure transition to the cloud that made international expansion possible without resorting to significant additional investments.
Chewy's operational moves and focus on the customer provide a stable anchor in stormy waters. As it enters new markets, continues to nurture customer loyalty, and adapts to changing market dynamics, Chewy's journey reflects management's conviction that the company has real potential for long-term growth and innovation.
Chewy might just be a "no-brainer" at current share prices
In the world of investments, a "no-brainer" opportunity combines growth potential with a strong foundation. Chewy's ability to consistently grow its net sales, expand its customer base, and venture into new territories while maintaining a customer-centric approach aligns well with this definition. While no investment is without risks, Chewy's strategic positioning, recent financial performance, and focus on resilience make it a contender for investors seeking a bargain buy.
As the anticipated earnings report at the end of August approaches, the market awaits further insights into Chewy's trajectory. For those who believe in the power of strategic vision and customer loyalty, Chewy's stock might just be the no-brainer pet supply stock they've been seeking.
