The Dip in Chewy Stock Could Be a Gift. Here's How It Could Set You Up for Life.

I have been closely monitoring leading e-commerce pet goods specialist Chewy (NYSE: CHWY) over the last few years. Its customer-centric operations have created one of the most loyal consumer goods customer bases. The company benefits from the "humanization of pets" megatrend that has helped the U.S. pet industry grow by 9% annually since 2018. Furthermore, its booming Autoship subscription program -- automated shipping for recurring purchases like pet food -- has become a no-brainer for many shoppers who are uninterested in driving to a physical store and lugging bags of pet food around.

Despite these promising developments, I waited to buy more Chewy stock, as I wanted to see the company's margins continue to improve -- and Chewy hasn't disappointed. However, despite its margins widening and sales rising 8% in its latest quarter, Chewy's share price remains 45% below its 52-week high.

Here's why I think that could be a gift for investors, particularly my daughter, as we've started buying shares of the company in hopes of setting her up for life.

Building upon Autoship's success

Chewy's Autoship subscription program has grown from 73% of sales in 2022 to 83% in 2025 and has become the "sales engine" of the company, as Chief Executive Officer Sumit Singh puts it. Powered by its distribution network of fulfillment centers across the U.S., Autoship becomes increasingly profitable with each new order and has now scaled to ship to nearly 100% of the U.S. within two days. This improvement in operating leverage from its Autoship operations has helped Chewy's gross profit margins rise from 20% in 2019 to 29% today, while its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin jumped from -7% to 3% over the same period.

Image source: The Motley Fool.

Management believes this EBITDA margin will eventually reach 10% (and potentially exceed it) over the long haul. However, while Autoship helped flip the company's EBITDA margin positive, further margin expansion is likely to come from Chewy's new higher-margin growth areas, like:

• Chewy Vet Care (CVC) clinics and veterinary software.
• Advertising.
• Chewy Made, the company's suite of private-label offerings.
• Chewy Pharmacy (the No. 1 pet pharmacy in the U.S.).
• Non-pharma health and wellness products.
• Chewy+, the company's nascent membership program.

Chewy Vet Care may be my personal favorite margin expansion driver, as the company looks to upend a high-margin veterinary industry riddled with vet shops owned by private equity that offer underwhelming care. Chewy's beloved status among its customers stands in stark contrast to these profit-focused vet clinics, making it a promising growth area. Chewy has 18 clinics opened across five states, and management has already stated that these CVC shops are "the fastest NSPAC (net sales per active customer) compounder in the business."

Meanwhile, offerings like advertising and Chewy+ offer the potential for high-margin inflows so long as Chewy can deliver strong returns on investment (ROI) to both its advertising partners and its membership accounts. Lastly, Chewy Made brings potential for higher margins through private-label products, like its own line of pet food that could boast gross profit margins five percentage points higher than typical food sales.

Trading at just 17 times forward earnings -- and with management guiding for 8% sales growth in 2026 -- Chewy looks like a gift for my daughter's portfolio at today's price.

Josh Kohn-Lindquist has positions in Chewy. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.