Chewy (NYSE:) strives to be the most entrusted and convenient online shop for pet owners worldwide.

Chewy believes it’s the best online resource for prescriptions, pet supplies and products.

Chewy became public two years ago. Its revenues continue to grow sequentially in every quarter, according to financial data.

Because pet owners are dependent on a steady supply of pet foods and products for their pets, Chewy’s net revenue is very stable. Chewy actually saw Autoship customer sales account for around $1.5billion of its $2.16billion in Q2 revenues.

Chewy considers Autoship customers those who have had an order shipped via its Autoship subscription program within the previous 364 days.

Chewy offers convenient and flexible Autoship delivery and auto-reordering for pet owners. This service helps meet their regular needs as well as smoothening Chewy’s cashflow.

Chewy built a great platform on this foundation. It is also a place that trusts. Chewy has a unique competitive advantage. This is because Chewy will be able retain its customers in an extremely competitive industry.

Chewy closed Q2 with 20.1million customers. That’s 21% more than the previous year and 29% higher on a twoyear basis.

While the company has seen record numbers of customers in recent years, their gross customer additions are higher than they were before the pandemic. As orders reached their peak in the lockdowns this makes perfect sense. However, investors shouldn’t consider that the 21% number as an indication of a possible slowdown.

Management expects revenue growth to be 24% by the middle of Q3. This should assure investors that growth won’t slow down as much, as the bears may argue.

Wall Street is bullish, but I’m neutral about the stock. (See CHWY stock charts on TipRanks)

Valuation

The pet industry is extremely competitive, and margins generally remain thin, especially when it comes to resellers.

Gross margins remain below 28% despite the company’s expansion. However, with additional administrative and selling expenses, the net margins borderline on positive.

While Chewy may see potential net margins between 5%-10% as the subscription base expands, it’s unlikely the company will be highly profitable in at least the next decade.

Due to the EPS that is borderline negative, both current and future P/Es of Chewy are meaningless. However, analysts’ projections for FY 2025 indicate a $1.60 EPS.

Investors are paying 46x for FY 2025’s potential net income.

Wall Street’s Take

Turning to Wall Street, Chewy has a Moderate Buy consensus rating, based on 10 Buys, six Holds, and zero Sells assigned in the past three months. At $95.79, the average CHWY price target implies 29.7% upside potential.

Disclosure: Nikolaos Sismanis didn’t hold any position in the securities discussed in this article at the time it was published.

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