If you happen to have been on the lookout for a cause to not purchase shares of pet e-commerce firm Chewy (NYSE: CHWY), then its lack of buyer development in recent times was a reasonably good one. It overshadowed many in any other case good issues occurring on the firm.
To be clear, there’s been loads of good with Chewy. In 2024, the corporate had web gross sales of $11.9 billion. However the spectacular stat right here is that web gross sales per lively buyer proceed to develop. As of the fourth quarter of 2024, it had annual gross sales of $578 per lively buyer, on common. For perspective, this quantity was solely $495 in the identical quarter two years in the past.
The place to take a position $1,000 proper now? Our analyst group simply revealed what they imagine are the 10 finest shares to purchase proper now. Learn More »
Not solely are gross sales per buyer encouragingly trending greater and better, Chewy’s revenue margins are additionally bettering. In 2020, the corporate opened its first success middle with automation capabilities, and it is continued to open extra automated facilities within the years since. The tip result’s that Chewy’s gross margin has improved by over 20% since then and is now at an all-time excessive.
CHWY Gross Profit Margin knowledge by YCharts.
These improved revenue margins have translated to actual earnings for Chewy as properly. The corporate generated optimistic free cash flow in 2021, and it is grown steadily since. In 2024, its free money move swelled to $452 million, which is not dangerous for a corporation that is solely valued at $13 billion.
Chewy is utilizing its surging earnings not solely to reinvest within the enterprise, but additionally to reward shareholders. In 2024, the corporate bought back stock for the primary time, in the end spending greater than $900 million repurchasing shares to spice up shareholder value.
Gross sales development, margin enhancement, earnings, and shareholder-friendly strikes have all been optimistic developments for Chewy in recent times. However, a declining total buyer depend may have been a deal-breaker for some traders. That is why it is important to notice that Chewy is rising its buyer depend once more.
Why buyer development is a giant deal
On the finish of 2021, Chewy had 20.7 million lively prospects utilizing its e-commerce platform. The potential for rising this enterprise is sky-high. In any case, roughly 90 million U.S. households have a pet, and Chewy is the main e-commerce platform for pet food and toys. Additional rising its buyer depend appeared inevitable.
Nevertheless it wasn’t. The 20.7 million lively Chewy prospects on the finish of 2021 proved to be the excessive water mark. The corporate’s lively buyer depend has decreased steadily on a year-over-year foundation within the quarterly stories since then. These languishing outcomes juxtaposed towards such an apparently lengthy runway have been a great cause to view Chewy inventory with skepticism.
Nonetheless, the tide began to show within the third quarter of 2024 — Chewy’s buyer depend elevated from the earlier quarter. Then, in This autumn, the pattern picked up momentum, and the corporate added over 400,000 new prospects in comparison with the fourth quarter of 2023.
When lively prospects spend more cash, it is a good factor. However Chewy’s development potential is restricted if that is its solely supply of gross sales development. In distinction, the variety of households not utilizing Chewy’s companies represents an unlimited alternative. Because the business chief, one would anticipate easy crusing on this space, which is why its struggles have been a purple flag. However with two quarters of optimistic momentum once more, the outlook for Chewy seems to be bettering.
Is Chewy inventory a purchase?
Listed here are some vital issues to think about about Chewy inventory. Its monetary metrics are trending in the fitting path, now together with its buyer depend as properly. Furthermore, the corporate has a rock strong balance sheet with no debt and almost $600 million in money and short-term investments.
Chewy inventory additionally trades at an affordable valuation at simply 1 times sales. Assuming it could actually proceed to develop long-term and that revenue margins proceed to enhance, even simply modestly, this valuation affords a compelling entry level.
These two factors alone — its monetary metrics and its valuation — are sufficient to make Chewy inventory a cautious purchase. However its return to buyer development makes it a no brainer purchase in my opinion. The corporate has a big alternative forward of it, and after a few years of stumbling, it is bouncing again by attracting new prospects. If you happen to have been on the lookout for a great cause to purchase Chewy inventory, that is it.
So long as this continues, I think about that Chewy inventory can be a rewarding funding.
Must you make investments $1,000 in Chewy proper now?
Before you purchase inventory in Chewy, think about this:
The Motley Idiot Inventory Advisor analyst group simply recognized what they imagine are the 10 best stocks for traders to purchase now… and Chewy wasn’t considered one of them. The ten shares that made the lower may produce monster returns within the coming years.
Take into account when Nvidia made this checklist on April 15, 2005… when you invested $1,000 on the time of our advice, you’d have $664,271!*
Inventory Advisor supplies traders with an easy-to-follow blueprint for fulfillment, together with steering on constructing a portfolio, common updates from analysts, and two new inventory picks every month. The Inventory Advisor service has greater than quadrupled the return of S&P 500 since 2002*. Don’t miss out on the most recent prime 10 checklist, obtainable if you be part of Inventory Advisor.
*Inventory Advisor returns as of April 1, 2025
Jon Quast has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Chewy. The Motley Idiot has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the writer and don’t essentially mirror these of Nasdaq, Inc.
