Should Investors Buy This Online Pet Retailer?

Uncover - Chewy stock

Author: Tim Phillips

December 9, 2020

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Online pet retailer Chewy Inc (NYSE: CHWY) was up nearly 6% before earnings was released. Did it beat expectations and should investors hold it for the long term?

Tim’s Take:

For investors who like buying into long-term trends, it doesn’t get much better than pet ownership. Chewy fits that bill.

The online pet retailer offers consumers a vast array of goods for their traditional furry companions (or even more exotic pets).

Chewy reported some stellar fiscal third-quarter numbers yesterday after the market closed. For the three months ending 1 November 2020, the company posted impressive net sales growth of 45% year-on-year to US$1.78 billion.

This came in ahead of analysts’ expectations for net sales of around US$1.72 billion. Yet Chewy stock dropped slightly after hours.

Should investors be worried about the long-term growth story of Chewy based on the market’s reaction? I don’t think so and here’s why.

High expectations

This has been a feature of earnings season for many tech-oriented firms – great earnings still not being enough of a “beat” to please short-term traders.

On the whole, the news was good. For example, for the latest quarter Wall Street was expecting a loss of 13 cents a share but Chewy actually beat that by delivering a loss of 8 cents per share.

Yes, it’s loss-making but key metrics for Chewy are all heading in the right direction (see below). What’s more, the company generates about 70% of its overall revenue from its “Autoship” customers – a delivery subscription service.

Source: Chewy Q3 fiscal 2020 shareholder letter

Owning the pet space

Some investors may question what Chewy’s advantage is over, say, Amazon.com Inc (NASDAQ: AMZN)? First off, Chewy has a differentiated offering by providing a wider array of pet products on its platform but the big plus, where Amazon falls short, is that pet medication is now available to Chewy customers.

Furthermore, the online pet retailer scores highly for customer service and regularly refers to its customers as “pet parents”.

Little personal touches, such as a pet birthday card, also go that extra mile in proving to customers that Chewy has a heart and cares about its clientele. Happy customers tends to translate to happy shareholders.

For me, owning the leader in a space is a paramount ingredient to long-term success when investing. With Chewy, investors will be getting the trend-setting online pet retailer which has a huge growth runway ahead of it.

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Chewy Inc.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.