Chewy (CHWY -1.42%) stock fell following its Aug. 30 report for the second quarter. Even though it posted solid financials, worries about a cost-conscious consumer weighed on the stock.

However, the numbers also show pet owners often spend generously on their animals if possible. With Chewy's ability to deliver value and personal service, investors might want to treat the pullback as an opportunity.

Chewy in the second quarter

If the economy is heading toward a recession, you wouldn't know it from Chewy's financials. The $2.8 billion in second-quarter sales rose 14% from year-ago levels.

Active customers spent an average of $530 over the last 12 months, a 15% increase over one year. And although that active customer base of 20.4 million fell by just under 1%, the 76% rate of autoship sales showed that the combination of value and convenience can foster customer loyalty.

Despite that increase, net income of $19 million fell 15% as Chewy spent heavily on selling, general, and administrative expenses as well as advertising and marketing. Consequently, the earnings of $29 million came from the changes in fair value for warrants, investments, and currency exchange that allowed Chewy to turn a profit.

The company had $101 million in quarterly free cash flow. Considering that Chewy generated $119 million in free cash flow for all of 2022, its financial situation seems to have improved.

Management guided for 2023 revenue in the $11.25 billion range, an 11% increase at the midpoint. While that infers some slowing in the third quarter, it shows revenue will continue to grow at a steady pace.

Making sense of Chewy stock

Despite the mostly positive report, the stock fell 12% in the following trading session. On the earnings call, CEO Sumit Singh mentioned that pet household formation has slowed, indicating that consumers have become more value conscious. This seemed to worry investors, sending the stock downward.

Nonetheless, this might be an opportunity for investors, especially because of a key competitive advantage. Instead of operating as a transactional business like Amazon, Chewy adds a personal touch. For example, the company mails hand-written cards to customers and sends flowers when a pet passes away. It also offers 24-hour customer service, helping it stand out over its much larger rival.

Moreover, the stock has fallen 35% since the beginning of the year, and it is down 80% from its all-time high in early 2021. As a result, its forward price-to-earnings (P/E) ratio stands at just 45, and its price-to-sales (P/S) ratio has fallen to an all-time low of 1. This leaves it with a lower sales valuation than every major e-commerce company except for Wayfair.

CHWY PS Ratio Chart

CHWY PS Ratio data by YCharts.

Consider Chewy

Under current conditions, Chewy looks like a buying opportunity. Revenue continues to grow at double-digit levels, and the rising spending per person shows a continued willingness to indulge pets. With its rising sales in a challenging environment, the internet and direct marketing retailer looks like a buy amid the pullback, especially at its current share price and valuation.