Chewy Stock Is Struggling Now -- but Where Will It Be in 5 Years?

Key Points
Chewy stood out over the likes of Amazon with competitive pricing and superior customer service.
Net sales for Chewy increased even as the stock price dropped.
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Chewy (NYSE: CHWY) stock has endured years of struggle after it peaked in 2021 during the later stages of the pandemic. Since achieving that all-time high, the stock is down by about 78%.
Nonetheless, considering the state of the company, the stock's direction is likely on track for a reversal over the next five years. Here's why it is probably time to turn bullish on the specialty retail stock.
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What investors need to know about Chewy
The most surprising thing about Chewy is that its financial performance bears no resemblance to the stock price activity over the last few years.
When the stock peaked in 2021, pet owners tended to buy more of their pet-related products online. This played into Chewy's strengths by keeping its prices competitive while offering a high level of service not found at more transaction-focused e-commerce companies such as Amazon.
Chewy also stood out with an autoship plan that automatically orders products after a given period. Today, autoship makes up more than 83% of its net sales.
Nonetheless, the stock's popularity dropped right as the company had turned profitable in 2022, so its P/E ratio was not a meaningful valuation measure. Moreover, its price-to-sales (P/S) ratio of 7 was far higher than that of Amazon at that time.
Hence, as shoppers returned to offline shopping, investors began to sour on Chewy stock, and it has traded in a range since 2022.
Still, even though growth rates slowed, Chewy continued to increase sales levels as it turned profitable. It also added new lines of business, such as a pet pharmacy, telehealth services, and a Chewy+ subscription service that offers free shipping and other benefits.
Additionally, Chewy offers in-person vet care in five states. Though it operates only 18 clinics for now, it holds a massive amount of potential for expansion.
These offerings and the lower stock price have changed the game for Chewy stock. Its 50 P/E ratio may seem high, but it compares well to Amazon during its e-commerce growth phase. Also, Chewy's P/S ratio is down to 0.9, dramatically changing its value proposition.
Looking forward, analysts forecast 26% profit growth this year and 24% in 2027. As more investors recognize this growth and Chewy's low valuation, they will likely begin to buy more of its stock.
Buy Chewy stock
Time will tell whether Chewy is a once-in-a-lifetime buying opportunity. However, over the next five years, Chewy stock appears on track to reverse some or all of the declines over the previous five.
Despite the slowdown that came due to the end of the pandemic, Chewy never stopped growing its sales levels, proving it could compete with Amazon. Also, Chewy's added services gave pet owners more reasons to buy from the company.
Thus, amid a low valuation and annual profit growth that is well into the double digits, Chewy stock is probably setting itself up for a dramatic rebound.
Should you buy stock in Chewy right now?
Before you buy stock in Chewy, consider this:
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Will Healy has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Chewy. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.