For investors who aren't pet owners, take it from me: Our canine, feline, and other non-human friends are expensive. Without getting into specifics, my canine companion recently consumed a lot of my discretionary moola.
However, knowing that pet care isn't cheap is not exactly investment advice. Just look at Chewy (CHWY +4.69%). It's been nearly seven years since the online pet retailer's initial public offering (IPO), and the stock is up just 31.11% over that time. That's not even a quarter of the 146% returned by the S&P 500 over the same period.
Since its IPO, this consumer staples stock hasn't even delivered half the returns of the bellwether exchange-traded fund (ETF) dedicated to this sector. Today, we're talking about a stock residing 40.64% below its 52-week high. That's double the definition of a bear market, and while that's enough to rightfully spook some investors, Chewy may be worth chewing on.
Chewy stock is showing signs of life, and more upside could materialize. Image source: Getty Images.
Chewy rebound is gaining steam
Not all downtrodden stocks are guaranteed to rise from the ashes, but there's no denying that with the assistance of some constructive commentary from the pros, Chewy is rebounding. For the week and month ending April 20, the stock is up nearly 14% and 19%, respectively.
Those impressive percentages in short time frames, but interested investors still need to know what Chewy was and what it is today. As one of my fellow Fool contributors recently noted, the go-go days for this stock were during the COVID-19 pandemic, when pet adoption and online shopping surged. Since then, Chewy ground lower and lower.
The persistent declines may have been unjust punishment because this is much more than a pet food stock. Actually, Chewy has hallmarks of being both a value and a growth stock. A portion of the value in the equation comes from market observers who believe this stock trades at a deep discount to fair value.
NYSE: CHWY
Key Data Points
Chewy's growth attributes are also clear. Revenue is steadily rising in the 8% range while earnings are surging. The latter paves the way for margin expansion, and it's possible that Chewy's operating margins could grow by more than 100 basis points this year while potentially almost doubling by 2030.
Two more arrows in the Chewy quiver
Chewy has other growth levers to pull. Its autoship subscription business, sort of like Amazon's "subscribe and save" offering, not only fosters customer loyalty due to the convenience factor but also serves as a margin-expanding platform because advertisers see that much of the advertising-induced buying on Chewy is driven by autoship orders.
Second, Chewy is bolstering its consumer-facing brick-and-mortar footprint with Chewy Vet Care clinics. Rivals have deployed this strategy with some success, and Chewy sees opportunity as highlighted by the recently announced acquisition of Modern Animal. The company says that deal could "add over $125 million in annualized run rate revenue" and more than doubles the number of Chewy's land-based locations to 47 from 18.
With any acquisition, time is the ultimate judge, but Chewy could be onto something here, as data indicate Modern Animal clinics are margin- and revenue-superior to competing venues.
