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

Determining whether to invest in Chewy Inc. (NYSE:CHWY) or Target Corp. (NYSE:TGT) requires weighing the rapid growth of digital-first specialty retail against the established stability of a massive, multi-category brick-and-mortar powerhouse.

Chewy focuses exclusively on the pet category, using its subscription-heavy model to build deep customer loyalty. Target operates as a broad-line retailer, offering everything from groceries to apparel. While both compete for consumer dollars, they offer different profiles for investors looking to balance growth potential with established stability.

The case for Chewy

In its latest annual report, filed for FY 2025, Chewy noted it sells pet products, supplies, and prescriptions through its websites and mobile applications. It relies heavily on its Autoship subscription service, which provides recurring revenue and convenience for over 21 million active customers. The company also operates the largest pet pharmacy in America and is expanding into veterinary clinics.

In FY 2025, revenue reached about $12.6 billion, representing a growth of roughly 6.2% year over year. The company reported a net income of approximately $222.8 million for the period. This resulted in a net margin of around 1.8%, which measures the percentage of revenue remaining after all expenses.

As of its February 2026 balance sheet, the debt-to-equity ratio is approximately 1.0x, meaning its total debt equals its shareholder equity. Its current ratio, which measures the ability to pay short-term debts, is roughly 0.9x. Free cash flow reached about $562.4 million, though note that stock-based compensation (or, SBC) represented roughly 43% of operating cash flow, which inflates reported cash generation since SBC is a non-cash expense added back in the cash flow statement.

The case for Target

Target provides a curated multi-category assortment of general merchandise and grocery products within the competitive environment for retail stocks. It enhances its selection through strategic partnerships with major brands like Apple Inc. (NASDAQ:AAPL), Starbucks Corp. (NASDAQ:SBUX), and Ulta Beauty Inc. (NASDAQ:ULTA). The company also utilizes its physical stores as local fulfillment hubs for digital sales and operates a successful loyalty program.

In FY 2025, revenue reached around $104.8 billion, which was a decrease of approximately 1.7% compared to the prior year. Despite the slight dip in sales, the company achieved a net income of roughly $3.7 billion. This performance resulted in a net margin of about 3.5% for the fiscal period.

As of its January 2026 balance sheet, Target carries a debt-to-equity ratio of approximately 1.3x. Its current ratio is roughly 0.9x, indicating its short-term assets are slightly lower than its short-term liabilities. The company generated free cash flow of nearly $2.8 billion, providing ample capital for its dividends and internal growth initiatives.

Risk profile comparison

Chewy faces intense competition from online retailers like Amazon.com Inc. (NASDAQ:AMZN) and various mass merchandisers. It relies heavily on third-party shipping logistics and cloud infrastructure, making it vulnerable to service disruptions. Operational risks also include potential supply chain issues, particularly regarding private brand sourcing from international markets.

Target faces competitive risks from other retailers and digital platforms regarding pricing, fulfillment, and technological integration. It is susceptible to reputational damage, inventory shrinkage due to theft, and disruptions in its complex global supply chain. The company also manages ongoing legal and regulatory risks, including potential worker classification challenges at its Shipt subsidiary.

Valuation comparison

Target appears significantly more affordable based on its Forward P/E, which uses future earnings estimates, while the P/S ratio measures market capitalization relative to sales over the past twelve months.

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?

Well-known retailer Target is in the first year of its multi-year turnaround strategy, which aims to restore top-line growth and margins. The effort has been going well, but there is concern that elevated gas prices, which raise transportation costs and reduce consumers' spending capabilities, could derail the turnaround story over the near term. But to its benefit, Target is the most-followed retailer on social media platforms, has a strong women's clothing business, and should be able to capture more food business by expanding the section in remodeled stores. About half of Target sales include food items of some sort.

For fiscal 2027, Target is expected to see a sales gain of nearly 6%, to more than $110 billion, which is pretty good considering the pinched American consumer. Net income should improve much more strongly, to more than $1 billion, up to $4.7 billion.

Meanwhile, Chewy 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 2027, sales are seen rising 7% to $13.5 billion, with net income up more than 40% to around $317 million, according to consensus analyst estimates. American consumers have shown they will spend up to take care of their pets.

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).

Here, the choice is between two retailers that execute well, though with different profiles on how they make their money. There are times when a retail stock should command a premium, but in this case, the better approach is to go for good value in the shares. Target and Chewy have the same P/S ratio. But Target is much more affordable on a P/E basis, right around the average forward P/E for S&P 500 stocks.

Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Apple, Chewy, Starbucks, Target, and Ulta Beauty. The Motley Fool has a disclosure policy.