Chewy vs. Five Below: Which Retailer Stock Is a Better Buy for 2027?

Whether you are looking for defensive pet spending or high-growth value retail, choosing between Chewy Inc. (NYSE:CHWY) and Five Below Inc. (NASDAQ:FIVE) requires weighing two very different business models for your 2027 portfolio.

Chewy provides a specialized e-commerce platform for pet owners, while Five Below operates a vast network of physical stores selling trend-driven items at low prices. Both companies seek to capture larger shares of discretionary spending, but they rely on distinct operational strengths to drive long-term shareholder value.

The case for Chewy

As a major player among retail stocks dedicated to pets, Chewy serves millions of customers in the U.S. and Canada. The company offers approximately 190,000 products and services through its mobile app, supported by roughly 18,000 employees. Its strategy centers on the Autoship subscription program, which provides recurring revenue, alongside high-margin services like pharmacy and telehealth.

In FY 2025, revenue reached about $12.6 billion, representing a growth rate of roughly 6.2% compared to the prior year. This increase in sales helped the company generate a net income of approximately $222.8 million for the period. The net margin was close to 1.8%, which is an important metric for investors to watch as the company scales its healthcare clinics.

As of its February 2026 balance sheet, the debt-to-equity ratio is approximately 1.0x, meaning total debt is equal to shareholder equity. The current ratio is roughly 0.9x, which measures the company's ability to cover short-term liabilities with short-term assets. Free cash flow for the period reached about $562.4 million, though note that stock-based compensation represented roughly 43.1% of operating cash flow, which inflates reported cash generation since stock-based compensation is a non-cash expense added back in the cash flow statement.

The case for Five Below

Five Below is a specialty value retailer targeting kids, pre-teens, and teens with a dynamic assortment of trend-right products. The company ended its latest quarter with 2,022 stores across 46 states, offering items primarily priced at $5 and below. Its business model relies on high-volume physical foot traffic across eight product worlds, ranging from tech and sports to candy and room decor.

In FY 2025, revenue reached around $4.8 billion, which represents a growth rate of nearly 23% year over year. The company successfully generated a net income of approximately $358.6 million during this period of rapid expansion. This resulted in a net margin of roughly 7.5%, indicating how much profit the company keeps for every dollar of sales earned.

As of its January 2026 balance sheet, the debt-to-equity ratio is approximately 0.9x, showing that total debt is slightly less than shareholder equity. The current ratio stands at roughly 2.0x, suggesting the business maintains a strong buffer to meet its immediate financial obligations. Free cash flow for the fiscal year was close to $411.7 million, providing the capital necessary to fund further store openings and distribution network upgrades.

Risk profile comparison

Chewy faces intense competition from established e-commerce players, brick-and-mortar retailers, and specialized veterinary clinics. The company relies heavily on third-party logistics and cloud providers like Amazon.com Inc. (NASDAQ:AMZN) to maintain its digital infrastructure. Additionally, its performance is sensitive to overall pet ownership trends and potential governance risks associated with its controlling stockholders.

Five Below depends heavily on its ability to continue rapid store growth and expand its distribution network effectively. The company is exposed to international trade policies and tariffs, which can disrupt its supply chain and impact pricing. Furthermore, management must navigate risks related to inventory shrinkage and ongoing federal class action lawsuits over investor misstatements and consumer tariff refund claims.

Valuation comparison

Five Below offers a more attractive valuation based on future earnings estimates, while Chewy presents a lower entry point based on sales volume.

Valuation metrics include those sourced from Financial Modeling Prep (FMP) and may differ from those of other data providers.

Which stock would I buy for 2027?

Five Below is one of the hottest names in brick-and-mortar retail. The company sees impressive unit economics, with each new store it opens paying back its cost in about a year, which has management focused on growing through opening more stores. The plan is to add 150 stores annually, and Wall Street analysts say that even at that pace, management appears to have a good focus on finding quality locations.

The company has really taken to social media as a force to drive foot traffic, leading to a very impressive 18% same-store sales increase in the first half of its current fiscal 2027. Just as impressive, the company continues to expand its gross margins even as the Trump tariffs have raised costs for much of the product it sells.

For fiscal 2027, analysts see revenue growing 20% to $5.17 billion, with net income jumping 40% or more to around $360 million.

Chewy, meanwhile, is establishing a steady growth pattern. In a recently reported quarter, management noted that its Autoship program grew faster than overall sales, implying that many customers' standing orders will continue to provide a solid base for the company. The company also believes that in the long run, veterinarian and general pet health services are a huge untapped market for Chewy. The business recently closed on the acquisition of Modern Animal, which delivers high profitability per location and is a strong complement to Chewy's existing business.

For fiscal 2026, sales are seen rising 7% to $13.5 billion, with net income up nearly 50% to $333 million, according to consensus analyst estimates.

However, Chewy likely doesn't have a great competitive moat against brick-and-mortar competitors like PetSmart and Petco Health and Wellness Co Inc. (NASDAQ:WOOF).

American consumers have shown they will spend up to take care of their pets. But Chewy's low net income relative to its sales shows how competitive the pet supplies market is. Moreover, Five Below has a cheaper forward P/E ratio -- and that's what investors really want to buy: earnings. Given it's the cheaper stock on that basis, Five Below is the selection here.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Chewy. The Motley Fool recommends Five Below. The Motley Fool has a disclosure policy.