Not Nearly Enough People Are Talking About Chewy Stock

Key Points

• Chewy has one of the best business models in retail.

• The company is seeing both solid growth and gross margin expansion.

• Meanwhile, the stock is attractively valued compared to peers.

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Chewy (NYSE: CHWY) is the type of stock the market doesn't pay nearly enough attention to because it's in a category that doesn't grab headlines. The company isn't chasing some cutting-edge technology like artificial intelligence (AI) or quantum computing, it's selling pet food and supplies. However, it's built an attractive retail model with significant recurring revenue, and that type of business is very valuable.

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An attractive Autoship business

The beauty of Chewy is in its business model. The company has close to 21 million active customers, and most importantly, more than 80% of its sales come from customers that have used Autoship in the past year. This program allows Chewy's customers to set up recurring deliveries for items like dog food and cat litter. Autoship sales give Chewy a predictable revenue stream that is much less tied to economic cycles. Add in the fact that about 85% of its sales come from non-discretionary product categories, and you have an e-commerce business that looks a lot closer to Walmart or Tractor Supply Company in terms of resiliency.

Notably, though, Chewy is growing its revenue at a faster pace than these brick-and-mortar retailers, and it's expanding its gross margin by layering in several higher-margin revenue streams. The company has taken a page out of Amazon's playbook by turning to sponsored ads to help drive growth. This business carries gross margins of around 70%, which is more than double the 30% overall gross margin the company posted in Q2.

The company also continues to grow its health and pharmacy business, which can carry gross margins that are as much as 10 percentage points higher than its retail business. While Hims & Hers Health gets a lot of press about its drug compounding business, Chewy is actually one of only two companies in the U.S. that does pet medication compounding at scale, which carries even higher gross margins. With less than a quarter of its customers using its pharmacy services, this business has a long runway of growth.

The company is also leaning into private-label brands, which carry margins about 700 basis points higher than national brands. The company has seen solid momentum in this area and just recently launched a healthy, fresh dog food line called Get Real that competes with Freshpet and others. It has also followed in the steps of Amazon and Walmart by adding a paid membership program with perks that could not only help expand margins but also deepen customer relationships.

Time to buy the stock

Chewy stock pulled back earlier this month after the company reported its fiscal Q2 results due to rising operating expenses. However, results were still strong overall. Revenue jumped 8.6%, led by a 14.9% increase in Autoship customer sales (which includes all sales from recent Autoship customers, regardless of whether those sales were made through the subscription program). Meanwhile, it added 150,000 new customers in the quarter and saw its net sales per active customer climb 4.6% to $591.

The longer-term outlook for the company is also attractive. Pet ownership has been climbing for decades, and people continue to treat pets more like family, which is increasing their spending. Chewy has positioned itself not only as the go-to online retailer for pet food and supplies but also increasingly for pet health, where spending is rising even faster.

Lastly, the stock is attractively priced with a forward price-to-earnings (P/E) ratio of around 25 based on fiscal 2026 analyst estimates. That's a nice discount compared to other recession-resistant retailers such as Costco and Walmart, and similar to Tractor Supply Company.

Data by YCharts.

What investors are missing is that Chewy has already built a repeat customer base most e-commerce companies would envy, and it's now targeting new opportunities that should lead to earnings growth outpacing sales growth for years. The recent sell-off on a temporary uptick in expenses does not change that.

Chewy deserves a lot more attention than it is getting. Investors who are willing to buy this top e-commerce stock while it is still overlooked could enjoy market-beating returns long term.

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Geoffrey Seiler has positions in Chewy. The Motley Fool has positions in and recommends Amazon, Chewy, Costco Wholesale, Freshpet, Hims & Hers Health, Tractor Supply, and Walmart. The Motley Fool recommends the following options: short October 2025 $60 calls on Tractor Supply. The Motley Fool has a disclosure policy.