To The Moon

$Chewy, Inc.(CHWY)$

Chewy (CHWY) is one of the leading online pet retailers in the United States and has started cautiously expanding its operations into Canada. The company has built a strong brand presence and continues to grow steadily in a fragmented but rapidly expanding industry. But with current market volatility, growing trade tensions, and the increasing likelihood of a recession, investors are rightfully asking: is Chewy stock a buy, hold, or sell today?

In this analysis, I’ll walk you through the company's financials, growth outlook, competitive advantages, risks, and valuation—including a discounted cash flow analysis—to help you make an informed decision.

Chewy's Business Model and Market Position

Chewy operates as a pure-play e-commerce retailer focused exclusively on pet-related products. Its product offerings include pet food, treats, medications, toys, and accessories, serving a wide range of animals from dogs and cats to reptiles and birds.

Unlike Amazon or Walmart, Chewy's niche focus gives it a strategic edge. The platform is tailor-made for pet owners, and the company takes a customer-first approach that’s hard to replicate at scale. In fact, Chewy is known for its high-touch customer service—stories of handwritten holiday cards or condolence flowers for the loss of a pet aren’t just feel-good PR; they’re part of a business model designed around emotional loyalty. This kind of brand differentiation is what gives Chewy stickiness, especially among first-time pet parents.

A key part of its strategy is the Autoship subscription service. This allows customers to schedule recurring deliveries of pet food, medication, and other essentials. Over 70% of Chewy’s revenue now comes from this model. That’s a big deal. Not only does it offer customers convenience, but it gives Chewy predictable, recurring revenue—allowing them to manage logistics, forecast demand, and reduce customer acquisition costs.

Revenue Growth and Operational Trends

Chewy has delivered impressive top-line growth over the years. The company’s revenue has grown from approximately $3.5 billion in 2019 to nearly $11.9 billion over the last twelve months—a more than 3x increase in just five years.

Much of this growth was supercharged during the pandemic, when in-person retail was disrupted and e-commerce saw a surge in demand. But what’s notable is that Chewy has held onto a lot of that momentum post-pandemic, which speaks to the stickiness of its subscription model and brand equity.

The company has also made strategic investments into automation and fulfillment. Its next-gen fulfillment centers are increasingly automated, reducing the cost to serve each customer. This is showing up in their operating metrics: cash flow from operations (CFO) as a percentage of sales has been on a steady upward trend.

Today, that CFO-to-sales ratio sits around 5%—not eye-popping yet, but the trend is what matters. If this continues, Chewy could easily reach double-digit margins in the next 3–5 years. In an industry with tight margins, this kind of operational leverage is key.

Capital Efficiency and ROIC

One stat that caught a lot of attention recently is Chewy’s return on invested capital (ROIC), which came in at 92%. That number is incredibly high and—let’s be honest—likely unsustainable in the long term.

Chewy operates a capital-intensive business. It owns and operates warehouses, manages fulfillment logistics, and ships directly to consumers. These are not light-asset, high-margin software economics. So while the recent ROIC is impressive, investors should treat it as an anomaly, not a new baseline.

That said, management has shown remarkable discipline in capital allocation. They’ve resisted the temptation to overspend or chase growth at any cost. Their approach has been measured and efficient, which gives me confidence in their ability to continue compounding value over time—even if short-term metrics like ROIC fluctuate.

Valuation: Intrinsic Value and Market Pricing

While Chewy is trading below intrinsic value by some estimates, it’s still a growth stock, which makes it more sensitive to macroeconomic factors like interest rates and inflation expectations. If rates stay higher for longer, growth valuations may continue to compress, even if the underlying business performs well.

Let’s talk about valuation. I ran a discounted cash flow (DCF) analysis on Chewy and found its intrinsic value per share to be around $59. With the stock currently trading near $34, that represents a substantial margin of safety—over 40% undervalued by my estimates.

Now, valuation is part science, part art. DCF models are sensitive to assumptions like discount rate, terminal growth, and free cash flow projections. But even under more conservative scenarios, Chewy still looks undervalued.

For 2025, analysts are projecting $510 million in free cash flow, with that number expected to exceed $1 billion by 2029. Considering the business has zero debt and nearly $694 million in non-operating assets, that growth is being achieved without compromising the balance sheet.

On a forward price-to-earnings (P/E) basis, Chewy trades at around 23x earnings. For a high-growth, margin-expanding e-commerce company with a recurring revenue model and a dominant position in a $100+ billion industry, that multiple seems more than reasonable.

Risks and Challenges

Of course, no stock is without risk.

One immediate concern is rising tariffs. The U.S. is proposing tariffs as high as 145% on certain Chinese goods, and Chewy does source a portion of its products from China. That said, most of its essential categories—especially pet food—are sourced domestically. Items sourced from China are generally non-essentials like toys, beds, and accessories. These could be replaced by alternative vendors, though likely at higher cost.

Recession Risk and Demand Elasticity

Although pet food and essential pet care are non-discretionary purchases, Chewy’s broader product portfolio includes a wide range of discretionary items. In a recessionary environment, consumers might reduce spending on higher-margin items like treats, toys, or premium pet accessories.

Even with subscription-based revenue providing stability, average order value (AOV) and basket sizes could decline in a downturn, putting pressure on overall revenue growth and margins.

A more macro-level risk is a potential U.S. recession. While people generally won’t cut back on pet food or medications, discretionary spending on pet accessories could decline. So Chewy may see slower growth or pressure on its average order value in the near term. However, long-term, the underlying demand for pet care remains strong and durable.

Intense Competition from Larger Platforms

Chewy competes directly with Amazon, Walmart, and even specialty pet retailers like Petco and PetSmart (its former parent company). These competitors have deeper pockets, greater pricing power, and massive distribution networks.

While Chewy differentiates through customer service and specialization, it will need to continue investing in technology, logistics, and loyalty-building efforts to retain market share. The risk here isn’t necessarily market contraction, but market commoditization, where price and convenience dominate brand loyalty.

Thin Margins and Capital-Intensive Operations

Despite improvements in automation and fulfillment center efficiency, Chewy still operates in a low-margin, capital-intensive business. Unlike software or digital platforms with near-zero marginal costs, Chewy has significant ongoing expenses tied to logistics, labor, warehousing, and shipping.

While their cash flow trajectory is improving, any shocks to logistics infrastructure, rising labor costs, or inefficiencies in inventory management could impact profitability in a meaningful way.

Dependence on Autoship Retention

Chewy’s recurring revenue model is a major strength—but it also represents a risk. Over 70% of sales come from Autoship subscriptions, meaning retention and churn metrics are crucial. If the company fails to maintain high satisfaction and retention rates, or if a new competitor offers a better subscription value, its growth could slow.

Unlike media or software subscriptions, Autoship involves physical goods—so fulfillment accuracy, timing, and inventory availability are mission-critical.

Limited International Presence

Chewy's growth so far has been almost entirely U.S.-based, with only cautious steps into Canada. Compared to global e-commerce peers, the company’s international footprint is limited, which may cap long-term growth potential unless it pursues expansion more aggressively. But expanding globally also introduces regulatory complexity, currency risk, and localized competition—each of which adds operational and financial challenges.

Conclusion

Taking all of this into account—Chewy’s strong revenue growth, customer loyalty, improving margins, clean balance sheet, and its undervaluation based on both DCF and forward P/E—I believe this stock presents an attractive opportunity for long-term investors.

Yes, there are short-term headwinds. Rising tariffs and recession fears are real. But Chewy’s competitive advantages, recurring revenue model, and operational improvements position it well to navigate through economic cycles.

So for long-term investors with a 5+ year horizon, I rate Chewy stock a Buy.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub