Chewy Stock Trades at a Discount: Should You Buy or Hold for Now?

Chewy (CHWY) delivered a strong start to fiscal 2025 with Q1 net sales of $3.12 billion, up 8.3% year-over-year, largely driven by its Autoship program which accounted for 82% of sales at $2.56 billion. The stock has outperformed, rallying 24.3% over the past three months and trading at a forward 12-month price-to-sales multiple of 1.38x, a notable discount to the industry average of 2.02x. While Chewy projects fiscal 2025 net sales of $12.3-$12.5 billion and adjusted EBITDA margin expansion, management anticipates Q1's 6.2% EBITDA margin to be the peak for the year, with sequential declines expected due to seasonality and increased investments in marketing and strategic initiatives like vet clinics.

Analysis

Chewy, Inc. (CHWY) demonstrated strong operational execution in its first-quarter fiscal 2025 results, with net sales growing 8.3% year-over-year to $3.12 billion, exceeding its guidance. This performance is largely underpinned by the success of its Autoship program, which generated a record $2.56 billion, a 14.8% YoY increase, and now accounts for 82% of total net sales, highlighting a robust recurring revenue model. The company also expanded its active customer base by 3.8% to 20.8 million and increased net sales per active customer by 3.7% to $583. From a market perspective, the stock has rallied 24.3% in the past three months, significantly outperforming peers and the S&P 500, while technicals remain positive with the price above its 50-day and 200-day moving averages. Despite this momentum, the stock trades at a forward P/S multiple of 1.38x, a discount to the industry's 2.02x average. However, investors should note management's guidance that Q1's 6.2% adjusted EBITDA margin was a peak for the year, with sequential declines expected due to seasonality and increased marketing investments, which could pressure profitability if revenue growth does not accelerate.

Key Decisions for Investors

• Given the strong recurring revenue from the Autoship program and a valuation discount relative to the industry, the stock presents a compelling case for investors seeking long-term exposure to the digital pet care market.
• Investors should closely monitor upcoming quarterly earnings for the forecasted margin contraction, as profitability will be sensitive to the effectiveness of increased marketing spend in driving sustained top-line growth.
• While positive technicals support holding current positions, the guidance for near-term margin pressure suggests that prospective investors may consider capitalizing on any price dips for a more favorable entry point.