Chewy's Biggest Opportunity Could Massively Benefit Investors. Time to Buy Stock?

Since January 2024, Chewy (NYSE: CHWY) stock has lost roughly a third of its value. This is partly because the firm expected little pet sector growth this year and did not expect pricing rises to help it. However, investors may be overlooking a huge opportunity for the company. Should you buy the stock now?

Nice repeating business model Chewy has a recurring business model, which is important to understand. Pet food and health products account for 85% of their sales. Over 75% of its revenues come from autoship subscribers. It sold almost $8.5 billion to autoship customers in 2023.

Why does it matter? Because it shows future sales well. Most predictable companies are those with regular business, which investors want. These equities are valued highly by investors. This business develops a massive, devoted customer base that can be marketed other products, which is Chewy's big opportunity.

Pharmacy sales have huge potential. Although Chewy is the largest online pet pharmacy in the U.S., barely 20% of its clients use it. This gives Chewy a huge chance to sell these services to its customers. Over $12 billion is spent on pet medication in the U.S. While pet drug sales have been shifting online for years, 70% of pet pharmacy purchases still come from veterinarians.

Since pet medications and veterinary appointments are more expensive, Chewy benefits from switching consumers to its cheaper alternatives. Despite offering prescriptions cheaper than vets, Chewy nonetheless sees a large margin increase with pharmacy sales compared to its other company. In fact, the business claims its pharmacy profits can be 1,000 basis points better than retail operations margins.

Why do investors care? Because pharmacy sales are a major revenue growth opportunity and more profitable. Chewy is also opening Vet Care Clinics to promote its health and wellness products. It will open four to eight locations this year to test the concept.

Pet insurance is offered through partnerships with Trupanion (NASDAQ: TRUP) and Lemonade (NYSE: LMND). It has nearly 100% gross margin on sales and no partnership underwriting risk. Telehealth allows pet owners to consult with a vet online through Chewy. Online video calls are $19.99 for 20 minutes or free with select Careplus programs, while live text chats are free.

The company also publishes veterinarian-written articles and educational materials on PetMD. About 5 million people visit the site each month, which helps Chewy's website. Through PracticeHub, Chewy helps vets fill prescriptions. Chewy manages inventory, fulfillment, and delivery while vets authorize subscriptions.

These strategies alone can expand Chewy's company. The main benefit is that they can all lead clients to Chewy's growing pet pharmaceutical company.

Sell-offs generate chances Due to the sell-off, Chewy shares are at their lowest valuation in years, with a forward P/E of 20 times. The stock is appealing for a recurring business model expected to boost sales by 4%-6% in a slow year

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