Down 50% and Still Dominant: The 1 Growth Stock Worth Buying Right Now

It's been a tough year for Chewy (NYSE: CHWY) stock. It has been cut in half over the past year, and it's lost a third of its value in 2026 alone. This is despite the company continuing to deliver strong results and having a bright outlook.

Chewy arguably has one of the most attractive businesses in the retail space. The pet e-commerce player primarily sells pet food and other necessities that customers get automatically shipped right to their doors without even having to place a new order. About 84% of its sales come from customers using its autoship program, and about 85% of its sales are for food and pet medications. That gives it a very predictable, recession-resistant business model.

However, the stock fell in May after CEO Sumit Singh said at a conference that the company was not immune to macro headwinds. The market ignored the part where he also said this didn't change Chewy's ability to take share and grow earnings. In March, Chewy forecast it would grow revenue by between 8% and 9% and expand its earnings before interest, taxes, depreciation, and amortization (EBITDA) margin by about 100 basis points. And margin expansion is one of the biggest reasons to buy Chewy stock right now.

Chewy produced an EBITDA margin of 5.7% in fiscal 2025, which ended Feb. 1, 2026, and has a goal to eventually reach 10%. The company has several levers to pull to get to this goal, including increased automation and the use of artificial intelligence (AI) to continue to increase efficiency. It has also leaned into higher-margin private-brand sales, which can carry up to 700 basis points higher gross margins than national brands.

Chewy has also taken a page out of Amazon's book by introducing sponsored ads, which carry around 70% gross margins, and a paid membership program with perks. In addition, Chewy is expanding more into pet pharmacy and pet healthcare, both of which carry high margins.

Image source: Getty Images.

An undervalued gem

Despite its strong revenue growth, highly recurring business model, and strong operating leverage, Chewy trades at a very inexpensive valuation. Its forward price-to-earnings (P/E) ratio is only 13.7 times current fiscal-year estimates and 11.3 times fiscal 2027 consensus estimates. That's similar to Petco, which saw its revenue decline last quarter (-2.4%) and is projecting flattish sales for fiscal 2026 while closing stores. Chewy is also flush with cash ($879 million) with no debt, while Petco has more than $1.2 billion in net debt in addition to large operating lease liabilities. These two companies should not be trading at similar valuations.

Chewy is a dominant industry leader whose stock is on sale. This growth stock has plenty of upside potential stemming from operating leverage and multiple expansion.

Geoffrey Seiler has positions in Amazon and Chewy. The Motley Fool has positions in and recommends Amazon and Chewy. The Motley Fool has a disclosure policy.