Chewy (CHWY 2.48%) leverages e-commerce to boost sales for more than 130,000 pet products, but that hasn't been enough to reward long-term investors. The stock is down by over 70% over the past five years, which justifies caution.
The stock chart shows how quickly a stock can lose value, but Chewy is making progress behind the scenes. Revenue grew year over year in Q3 2025, and profits grew at a faster rate. It's a good sign, but here are some things to consider before buying Chewy stock.
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Is the company growing quickly enough?
Chewy reported 8.3% year-over-year revenue growth in the third quarter, a growth rate it has maintained for the previous two quarters. However, revenue growth has been slowing down over the last three years. Chewy doesn't seem to have many avenues to grow its top line faster.
NYSE: CHWY
Key Data Points
Additionally, with net profit margins hovering around 2%, the company doesn't resemble high-growth tech companies that can reach 10% to 20%. Chewy has held low margins for several years. Fiscal 2023 and fiscal 2024 net profit margins were 0.4% and 3.3%, respectively, while the third-quarter 2025 net profit margin was 1.9%.
Structurally, Chewy isn't particularly profitable, with gross margins below 30%, which makes it challenging to achieve high net profit margins. So an 8% year-over-year revenue growth rate may not be enough to sustain meaningful long-term gains.
Chewy is focusing on increasing profit margins
Chewy intends to boost profit margins by focusing on high-margin opportunities like health and wellness. The company recently acquired SmartEquine to tap into the highly profitable equine health industry. This acquisition should enable Chewy to offer subscription-based supplement programs, personalized nutrition plans, and a range of equine products.
SmartEquine also aligns with Chewy's focus on annual recurring revenue and higher customer lifetime values. This ongoing shift can make some of Chewy's revenue more predictable.
However, it'd be prudent to avoid high expectations for Chewy's profit margins. The entire pet industry is known for low profit margins. Other pet stocks like Trupanion (TRUP +1.08%), Freshpet (FRPT 1.50%), and Petco (WOOF +1.38%) have low-single-digit net profit margins.
Chewy's push into vet care can boost margins, but Petco also operates in that industry and still has low margins. Although Chewy is an online-only retailer for pet supplies, it's hard to give it the type of valuation you would find with a typical e-commerce stock. The company has established an excellent niche for itself, but financial robustness doesn't always translate into outperformance of the S&P 500. Chewy is a stock to watch from the sidelines.
The stock currently trades at a 67 P/E ratio, which is quite expensive given its growth rate.
Given these factors, it'd be prudent to stay on the sidelines until profitability improves and valuation drops.
