E-commerce companies can be tricky investments during times of uncertainty. If a company depends heavily on sales of discretionary items, it may see revenue falter when consumers aren't very confident about the future. And the stock may suffer when investors worry about the overall investing environment.
But an e-commerce company selling essential products and services is a different story. This sort of player can generate steady growth at any time, making it a fantastic stock to own over time. Right now, an e-commerce company that reached profitability a few years ago and offers investors great visibility falls into this category. It's particularly interesting to buy such a stock now, at a time when general uncertainties linger -- from concerns about the U.S. economy to questions about the impact of conflict in Iran.
My prediction is that the following under-the-radar e-commerce stock may even be set to soar. Let's check it out.
Image source: Getty Images.
A $150 billion market
The company I'm talking about is one you might know well if you're a pet parent. It's Chewy (CHWY 7.91%), an e-commerce site where you'll find a wide range of products and services for your pet, such as food, toys, and healthcare. Not everyone owns a pet, but about 95 million U.S. households have at least one -- and this resulted in a U.S. pet market of more than $150 billion last year, according to the American Pet Products Association. And the organization predicts that figure may reach $165 billion this year.
Considering Chewy's wide range of essential pet products and services, it's likely to benefit from this market growth. Regardless of the economic backdrop, people must buy food and health services for their pets.
Of course, some Chewy offerings face competition from retailers like Walmart or specialized pet stores, but Chewy differentiates itself in a few ways. Customers like the complete offering found at Chewy: They can go to the same destination for products as well as services like a quick online vet visit and pet health insurance.
And Chewy's solid digital presence helps it stand out from rivals with physical stores, as e-commerce makes it easy for consumers to shop from anywhere, at any time.
Finally, Chewy's Autoship service is a key component that's clearly working for customers and for the company. Here, customers sign up for automatic reorders of products they regularly need, such as pet food. This offers them convenience, and it gives Chewy and its shareholders visibility into future revenue. It's worth noting that Autoship, quarter after quarter, has represented more than 80% of Chewy's total sales.
All of these elements are reasons to be optimistic about Chewy's position and growth prospects in the pet market.
A new revenue stream
On top of this, Chewy is also growing a new revenue stream. The company launched its first vet care clinics in 2024 and continues to build its presence. This is a genius move because, in addition to adding a source of revenue, the clinics also may introduce the e-commerce site to pet parents who haven't yet discovered it.
This strategy has worked well for Chewy, as it's grown revenue and net income in recent years.
CHWY Revenue (Annual) data by YCharts
Meanwhile, the stock price hasn't followed. It's lost more than 20% over the past year, and that's brought down the stock's valuation. Chewy trades at just under 16x forward earnings estimates, compared to more than 32x about a year ago. At this level, and considering the points I mentioned above, Chewy's very reasonably priced -- and this offers the stock room to run.
NYSE: CHWY
Key Data Points
So, what sort of investor should consider Chewy? Cautious investors may like Chewy because the company sells items and services that always are needed -- customers will continue to buy them even during difficult times. And more aggressive investors may appreciate Chewy's focus on growth and expansion, as this could be the ticket to significant revenue gains down the road.
Considering the full picture, my prediction is that this under-the-radar e-commerce stock is ready to soar. And even if it doesn't roar higher immediately, Chewy stock has what it takes to climb over the long run.
