Chewy Stock Keeps Beating the Stock Market. Time to Buy?

When looking for top-performing stocks these days, you might immediately think of technology players. After all, the theme of artificial intelligence (AI) has been driving market growth for a while now, as companies like chipmaker Nvidia and software player Palantir Technologies have soared. But tech isn’t the only place to search for players that can deliver double- or triple-digit increases.

One particular company, Chewy (CHWY 2.78%), is proving that solid earnings growth over time, thanks to smart financial operations and a great business, can deliver market-beating stock performance. The online retailer of pet supplies and veterinary care has seen its shares advance more than 21% this year, as the S&P 500 rose 9.6%.

Is it time to buy this market-beating stock, or is it too late to get in on the action? Let’s find out.

Treats, toys, and more

First, let’s talk about Chewy’s business. This company offers everything your best friends — from dogs to fish — love, like treats, toys, and food. It even offers things they don’t like so much, such as prescription drugs, and, now, trips to the vet. That’s right: As of last year, the company began opening veterinary clinics. This was a genius move, as it expanded the revenue stream. It also gave the company a way to introduce its e-commerce business to pet parents who hadn’t yet discovered it, or who maybe needed an extra nudge to consider online shopping for their pets.

All this has helped Chewy increase revenue and net income over time. Importantly, the retailer has been able to do this while remaining healthy financially. As of the recent quarter, Chewy had $616 million in cash and equivalents and no debt.

In the fiscal 2025 first quarter, ended in May, the company reported an 8% increase in sales to $3.1 billion, surpassing the high end of its guidance range. The company also delivered more than $192 million in adjusted EBITDA. That’s $29.8 million higher than in the year-earlier period. Chewy is showing that it’s confident in its business by buying back shares — it used about $23 million of its almost $50 million in free cash flow in the quarter to repurchase its own stock.

Chewy’s AutoShip sales

One of the big drivers of Chewy’s success — and something I like in particular — is the relationship Chewy has with its customers. Those who buy at Chewy generally are loyal, and we can see this in AutoShip numbers. This is a service that allows you to set up an automatic reorder of your favorite products, and AutoShip now represents 82% of Chewy’s net sales. This is fantastic because it offers investors visibility on Chewy’s sales quarter after quarter.

Chewy is also growing revenue these days thanks to its offering of sponsored ads to various brands. The company says that sponsored ads, introduced in 2023, were the biggest driver of gross margin gains in the quarter. Sponsored ads, as well as AutoShip and other Chewy efforts, should help the company on its path of growing adjusted EBITDA margin from 6.2% in the recent quarter to the long-term goal of 10%.

Is Chewy stock expensive?

Now, let’s get back to our question. Chewy’s been a fantastic performer this year, but is the stock still a buy today? The shares have become more expensive than they were earlier in the year, as they now trade for 32x forward earnings estimates.

CHWY PE Ratio (Forward) data by YCharts. PE = price-to-earnings.

But, considering Chewy’s long-term prospects, this still looks like a reasonable price to pay for the stock. Of course, Chewy may encounter some rough patches along its path — while the vet clinic plan is great, it’s important for Chewy to pace itself and not overexpand. As for sales of pet supplies, Chewy also continues to face competition from retailers that focus on low prices, such as Walmart or Amazon. Any of these elements could upset growth and represent a risk.

That said, Chewy has made wise moves so far, and the general long-term picture looks bright thanks to the points I’ve made above. Investors have rewarded these successes by piling into the stock, and that movement may not be over. But, most importantly, whether Chewy continues to outperform the S&P 500 in the near term or not, the company has what it takes to win over the long term. That makes Chewy stock an excellent buy today.