1 growth stock under the radar to buy and hold
Online pet store soft (NYSE: CHWY) is not yet considered a prime title. It is not a high-flying technological stock. It also does not manufacture electric vehicles. Instead, it’s a company dedicated to pets and pet parents.
Investors might therefore be surprised to read Chewy’s impressive growth rates and expanding profit margins. These are just two factors that make this under-the-radar growth stock a buy-and-hold candidate for long-term investors. Let’s take a closer look at the company to better understand why Chewy deserves a place in your portfolio.
Chewy increases revenue and customers
As I mentioned earlier, Chewy’s sales have grown at an impressive rate. From 2016 to 2021, Chewy’s sales grew from $ 900 million to $ 7.1 billion. It’s an e-commerce business that sells a lot of things that your pets might need and want. Interestingly, revenue growth is based on two fronts: acquiring new customers and increasing spend per customer.
In its most recent quarter ended Oct. 31, Chewy said it had 20.4 million active customers. This was 14.7% more than the 17.8 million he had at the same time last year. Like other e-commerce businesses, Chewy has thrived since the start of the pandemic as millions of people have sought to avoid shopping in person for fear of COVID-19. Additionally, the number of pet owners increased as people sought companionship when human contact was discouraged. Luckily for Chewy, owning a pet is usually a multi-year commitment. People who became Chewy’s new pet parents and clients during the pandemic could stay for a long time.
Plus, Chewy’s customers spend more. Net sales per active customer increased to $ 419 in the third quarter, up 15.4% from the same quarter last year. The $ 56 increase in spend per customer is the largest in company history. Management expertly observes the buying habits of customers and introduces the new products they desire. Chewy’s private label catalog has quadrupled since 2018 and its branded products represent a growing percentage of overall sales.
Chewy’s pet health ambitions
Chewy recently ramped up efforts to become a bigger player in the $ 35 billion pet health market. Already, it offers a service called Connect With a Vet, where parents of pets can speak to a Chewy-provided vet over the phone or online. The service is free for customers who sign up for Chewy’s Autoship program, which is similar to Amazonsubscribe and register the feature. Going forward, Chewy will offer the service for a user fee to customers who do not use autoship. It certainly improves Chewy’s customer value proposition and is a great reason for people to stay with Chewy.
To add to the category of pet health services, Chewy announced that starting in spring 2022, it will begin offering a unique line of pet health insurance through a partnership with Trupanion.
Chewy’s stock is cheap
To justify the investment in Chewy more convincingly, it trades at a relatively low price. Chewy’s price / sales ratio at the time of this writing is 2.7. That’s less than half the price it was selling earlier in the year and near the low end of its selling range during its brief history as a public company. The stock has had a rough time this year as investors fear supply chain disruptions will hurt Chewy’s sales and increase Chewy’s costs in the near term.
However, in the longer term, Chewy has proven that he can increase revenue and increase profit margins simultaneously – gross profit margin has gone from 16.6% in 2016 to 25.5% in 2021. Short-term pain is an opportunity for long term investors. buy this growth stock at a cheap price.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.