Chewy vs. Walmart: Which Is the Better Way to Invest in Pet Spending?​

Chewy (NYSE: CHWY) and Walmart (NASDAQ: WMT) both specialize in retail, but Chewy is more niche since it exclusively focuses on the pet industry. While Walmart also offers many pet products, it's more known for being a retail location that can fulfill all of your shopping needs. Groceries, clothing, and consumer goods are some of the many products that line Walmart's aisles.

Grandview Research projects a 5.1% compound average growth rate (CAGR) for the pet care market from now until 2030. But while Chewy is a pure play in the industry, Walmart looks like the better stock.

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Chewy relies too much on the pet industry

There's nothing wrong with Chewy gaining market share in the pet industry. However, it becomes a concern when you compare Chewy with Walmart. The pet industry has low profit margins, which limit future growth opportunities.

For instance, Petco and Chewy have delivered net profit margins in the low single digits for several years. Freshpet has mid-single-digit net profit margins. Chewy is addressing the issue by diversifying into pet health, which has an average net profit margin of 20%. Chewy currently has more than 20 veterinary practice locations.

While Chewy specializes in pet food and health services, Walmart has more opportunities to grow. It's the largest grocery chain in the U.S., and since many people go to Walmart for their food, they have many opportunities to fill their shopping carts with other items.

People don't shop at Chewy as often, and Walmart can fulfill many pet owners' needs just as effectively. Walmart also has low margins as a retailer, but its online advertising segment can change that narrative. Walmart's global advertising sales increased by 53% year over year in the third quarter of fiscal year 2026, which ended Oct. 31, 2025. As that segment gains momentum, Walmart has an opportunity to boost profits even if its sales growth stays in the low single digits.

Walmart also has a better valuation

Walmart and Chewy are both growing, but neither has substantial growth plans that warrant excessive valuations. Walmart's 5.8% year-over-year revenue growth in Q3 FY26 and Chewy's 8.3% year-over-year revenue growth in its third quarter of fiscal 2025, ended Nov. 2, don't warrant irrational exuberance.

While these companies have similar growth rates, Chewy trades at a much higher premium. The online-only pet retailer has a 67 P/E ratio compared to Walmart's 42 P/E ratio. Chewy's valuation gives it much less room for error.

Most Chewy shareholders haven't been willing to wait. The stock is down by almost 70% over the past five years as its pandemic boom has become a distant memory.

Chewy's inability to meaningfully expand margins also created more pressure on the stock's valuation. Its net profit margin hover at around 2%, compared to a 5% to 6% net profit margin for Freshpet and a net profit margin barely below 1% for Petco. Walmart's net profit margins often range from 3% to 4%.

Investors who want pure exposure to the pet industry will benefit more from Chewy. However, Walmart has a much stronger competitive moat and serves more customers, which positions its stock for higher long-term gains.

Marc Guberti has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy, Freshpet, and Walmart. The Motley Fool has a disclosure policy.