Pet e-commerce emporium Chewy (NYSE: CHWY) has faced a turbulent 2024, shedding a third of its market value. The company’s caution regarding modest industry growth and price hikes underpins this decline.
Yet hidden beneath market gyrations lies a golden opportunity that intrepid investors could be overlooking. Is the time ripe to embrace Chewy’s stock?
An Ever-Green Business Model
Crucial to grasp is Chewy’s recurring revenue model—85% originating from vital pet products like food and healthcare. Furthermore, 75% of sales stem from auto-ship subscriptions, totaling $8.5 billion in 2023 sales.
Why this matters? Predictability. Investors crave consistency, and Chewy’s recurring revenue stream promises just that. Such firms command robust valuations due to their stability.
This model also nurtures a vast, loyal clientele ripe for additional offerings, setting the stage for Chewy’s imminent breakout.
A Prescription for Success: Pharmacy Sales
Although leading in online pet pharmacy in the U.S., merely 20% of Chewy’s customer base taps this service, leaving a trove of opportunity among existing patrons.
The $12 billion U.S. pet medication market, despite a digital shift, still sees 70% of sales via vets. As costs escalate, Chewy’s cheaper alternative behooves both consumers and the company. This segment boasts margins 1,000 basis points higher than retail, promising not just revenue growth but also enhanced profitability.
Why the buzz? Pharmacy sales offer a potent mix of growth and robust profitability—investors’ dream come true.
Image source: Getty Images.
Nurturing Health and Wellness Growth
Chewy is nurturing awareness for its health products by inaugurating Vet Care Clinics, with plans for four to eight units this year to test the concept.
Partnerships with Trupanion (NASDAQ: TRUP) and Lemonade (NYSE: LMND) for pet insurance, coupled with a telehealth platform for online vet consultations, underscore its commitment to holistic pet wellness.
The company’s PetMD website, garnering 5 million monthly users, serves as an educational leg-up to drive traffic to Chewy. Its PracticeHub platform assists vets in prescription fulfillment, converging all efforts to fortify Chewy’s burgeoning pet pharmacy business.
The Phoenix in the Plunge
Chewy’s stock plummet has cast it among the most affordable in recent years, sporting a forward P/E near 20x. For a business projecting 4%-6% revenue growth in an economic crawl, this valuation beckons.
CHWY PE Ratio (Forward) data by YCharts.
Given its alluring valuation and the promising bonanza in pet pharmacy, health, and wellness, Chewy emerges as a prime prospect for investors.
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Geoffrey Seiler holds no position in any mentioned stocks. The Motley Fool has stakes in Chewy, Lemonade, and Trupanion. The Motley Fool abides by a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
