The Market Is Nervous. This Growth Stock Is Your Shot at Doubling Up.

It's no secret that equity investors have a lot of things on their minds. They were already concerned about the overall economy at the start of the year. The Iran war and the potential economic fallout took these worries to a new level.

Investors' most immediate concern is the effect of the rapid rise in oil prices on consumer discretionary spending. This follows an extended period in which many consumers' budgets have already been stretched by persistently high inflation.

The stock market has recovered from the steep decline earlier this year. Large-capitalization stocks, measured by the S&P 500 index, have gained 1.7% this year through April 14.

That's hardly worth writing home about, but the tepid performance gives investors an opportunity to aggressively purchase growth stocks, which typically perform worse during challenging times. This year, the S&P 500 Growth Index lagged, gaining 1.2%.

For those willing to stomach some short-term volatility, this stock heads my list.

Image source: Getty Images.

Growing customers

Investors may think Chewy (NYSE: CHWY) merely performed well during COVID-19's height, when pet adoption surged as many people were stuck at home. Certainly, revenue took giant leaps during the early days of the pandemic for this online provider of pet products, supplies, and prescriptions.

However, the company's long-term growth prospects remain bright. Granted, it's not likely to achieve the same level of growth, but those were extraordinary times that everyone hopes aren't repeated.

Most importantly, Chewy continues to add customers, particularly loyal ones. The company ended fiscal 2025 with 21.3 million active customers, up 4% from the previous year. Management defines these customers as those who have ordered a company's product or service at least once in the past year.

Autoship customers remain another key measure. This is a subscription program that provides stability and predictability to Chewy's revenue while providing customers with convenience. Autoship customer sales increased 11.8% year over year to $10.5 billion. These grew to 83.3% of sales last year, versus 79.2% a year ago.

Chewy had solid revenue growth of 8.3%, adjusted so that there are 52 weeks in both periods. This covered the period that ended on Feb. 1.

Growth opportunity

The customer base means that Chewy has a ready market to expand its product reach and service offerings, notably healthcare. This area ties in nicely with Chewy's Autoship program. Management has expanded healthcare services over the years, including offering prescription medications, telehealth, outsourcing services to veterinarians, and insurance.

More recently, Chewy has opened its own clinics. It added 10 last year, bringing the number to 18. Additionally, the company recently announced that it plans to acquire Modern Animal, which has 29 clinics. Management expects the deal to add $125 million in annual sales.

Chewy also has an opportunity to expand geographically. It's barely scratched the surface in the international market, starting offerings in Canada in 2023.

Better valuation

Investors seem to have lost sight of the long-term growth story, however. This year, Chewy's stock price lost 21.6%.

The price drop isn't surprising given the expensive valuation. When investors get nervous, they fear that stocks with high growth expectations will fail to live up to them. The stock's price-to-earnings (P/E) ratio has dropped from the upper 60s to 52.

That's still expensive, particularly when compared to the overall stock market. The S&P 500 trades at a P/E multiple of 30. But it's warranted.

For those concerned about an economic downturn, pet spending tends to hold up very well. After all, many pet owners consider their pets family members. Overall consumer spending fell from 2008 through 2010, years encompassing the Great Recession. But pet spending increased 12% during those years, according to the American Pet Products Association.

With sales growth having the potential to accelerate, combined with a non-cyclical business, Chewy's stock price drop makes this an opportune time to purchase shares.

Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.