1 Growth Stock Down 68% to Buy Right Now

After years of declines, it may be time for investors to again pay attention to Chewy (NYSE: CHWY) stock. Indeed, investor interest in the pet supply e-retailer appeared to fade amid the post-pandemic downturn that never seemed to end for this company.

Finally, its outlook may be changing. Even though it is down 68% from its 2021 peak, the stock has made significant strides amid rising sales growth and increased profits. As customers spend more on the platform, rising popularity and new revenue sources could eventually take Chewy stock back to its long-term highs and beyond.

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After a severe downturn, Chewy is barking up the right tree

Chewy gained traction with pet owners beginning in the previous decade. While it competed with peers like Amazon and brick-and-mortar retailers on price, Chewy developed a competitive advantage with 24/7 customer service and efforts to personalize the customer experience. Actions such as sending handwritten cards to pet owners or sending flowers upon the passing of a pet helped endear the company to customers.

Its increasing success prompted Chewy to launch its IPO in 2019, a move that proved to be fortuitous as the pandemic increased pet adoptions and drew locked-down customers to its website.

Unfortunately for Chewy bulls, the stock plunged beginning in early 2021 as these trends reversed. By the middle of 2022, the bear market had wiped out all of the stock's pandemic-related gains, and that slide continued even as shares fell to all-time lows.

Today, it finally appears to have turned around after bottoming in 2024. The company credits rising spending among current customers and increased pet adoption rates. Also, its paid membership program, Chewy+, has become its answer to Amazon Prime. Members receive perks such as free shipping and cash rewards, prompting customers to turn to its website more often.

Moreover, the company began an international expansion in 2023 by selling in Toronto and surrounding areas. Although it has not yet separated results for Canada, it has told investors it intends to continue adding new markets outside the U.S.

This move brings both growth potential and serious concerns, especially if it expands beyond Canada. U.S. retailers tend to succeed in Canada, which has a similar retail culture.

However, the retail industry has suffered notable failures as differing retail cultures have stymied even the most successful retailers as they tried to sell abroad. Hence, investors should assume this will be a challenge for Chewy if it expands outside North America.

Fetching improved financials

Fortunately for Chewy bulls, the focus is now on its significantly improved financial performance. In the first 39 weeks of fiscal 2024 (ended Oct. 27, 2024), its $8.6 billion in net sales grew by 4% yearly. Also, with revenue growth of 5% in fiscal Q3, the rate of revenue increase seems to be rising.

Moreover, as Chewy kept expense growth in check, operating income increased dramatically. Also, thanks to a $216 million income tax benefit, net income in the first 39 weeks of the fiscal year was $370 million, far above the $8 million in the same year-ago period.

Additionally, the improvements should continue as Chewy expects just under $12 billion in net sales for all of fiscal 2024, amounting to 6% revenue growth for the year. Amid that improved performance, Chewy stock is up by more than 90% over the last year.

CHWY data by YCharts

From a valuation standpoint, that increase led to a P/E ratio of about 42. While that may seem high, a forward P/E ratio of 31 implies profit growth should increase at a rapid pace. That could bode well for the pet supply retailer as it continues its rebound.

Consider Chewy stock

After a brutal bear market sell-off, Chewy finally appears set to return to growth mode. Its stock has recovered as higher spending by existing customers and revenue sources such as Chewy+ have brought massive profit growth.

Admittedly, revenue growth remains in the single digits, and it is too early to tell whether efforts to expand internationally have succeeded. Nonetheless, Chewy appears to have found a path to sustainable growth, and that should bode well for the company, and, by extension, its shareholders.

Should you invest $1,000 in Chewy right now?

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. 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.