One stock that has quietly been a very strong performer over the past year is Chewy(NYSE: CHWY). Shares of the online pet products retailer rose following the release of its fiscal fourth-quarter results on Wednesday, with the stock up more than 120% over the past year as of this writing.
Revenue growth has started to pick up for the company, while gross margins have also ticked up. That's a nice combination for a steady business with strong visibility.
Let's dig into Chewy's results and guidance to see if investors should be buying the stock at these levels.
Revenue growth picks up
One of the most notable parts of Chewy's business is that it tends to be very steady and shows signs of being recession-resistant. The bulk of the company's sales come from consumables, such as dog food or pet medication. Meanwhile, over 80% of its sales come from customers using its Autoship service who have their orders scheduled to be delivered on a regular basis.
For its fiscal 2024 Q4 (ended Feb. 2, 2025), Chewy saw its revenue soar nearly 15% year over year to $3.25 billion. That was ahead of the company's earlier forecast for revenue of between $3.18 billion and $3.2 billion. The growth was a nice improvement from the 3% sales growth in each of the first and second quarters and the 5% growth in the third. However, its Q4 did have an extra week, and sales growth would have been 6.9% without the contribution from the additional week.
Autoship sales climbed more than 21% year over year to $2.6 billion and were 80.6% of its total revenue. Net sales per active customer (NSPAC), meanwhile, continued to rise, up 4% on the year to $578. Chewy also added 400,000 active customers in fiscal 2024.
Gross margin continued to tick up, with it increasing by 30 basis points in the quarter to 28.5%. This has been a focus for the company as it has entered into more higher-gross-margin businesses, including private label, sponsored ads, and pet pharmacy. It noted that sponsored ads were now 1% of sales.
This helped lead to a nice increase in profitability metrics. Adjusted earnings per share (EPS) jumped 56% to $0.28 from $0.18. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, climbed 44% year over year to $124.5 million.
The company continued to generate a lot of cash, with free cash flow of $452.5 million. It bought back $942.8 million in stock during the year. It ended the year with $596.7 million in cash and marketable securities and no debt.
Looking ahead, Chewy forecast fiscal Q1 revenue to grow by 6% to 7% to $3.06 billion to $3.09 billion, with adjusted EPS of between $0.30 to $0.35. It recorded adjusted EPS of $0.31 a year ago.
For the full year, the company guided for revenue to increase by a similar 6% to 7% to $12.3 billion to $12.45 billion when adjusted for the extra week in fiscal year 2024. Chewy grew its revenue by 6.4% in fiscal 2024, but this included a 53rd week. Otherwise, it would have been around 4.4% growth. As such, it seems like the company is looking for a nice acceleration in growth.
CEO Sumit Singh said that pet ownership has stabilized and that the industry continues to normalize. Meanwhile, the company does not expect a strong effect from tariffs. It says it is insulated, given that nearly 85% of its revenue comes from consumables.
Image source: Getty Images.
Is the stock a buy?
During a time when there are a lot of questions about the economy, a stock like Chewy can be a ballast in a rough sea. While people could conceivably turn to cheaper pet food, they aren't going to stop feeding and giving medicine to their pets. Meanwhile, any trade down could be good for its higher-margin private label business. It also could attract more people looking for cheaper medicine than that offered by veterinarians.
From a valuation perspective, Chewy stock currently trades at a forward price-to-earnings (P/E) ratio of around 27 based on current-year analyst estimates. This is in between other recession-resistant retailers such as Walmart(NYSE: WMT) and Tractor Supply(NASDAQ: TSCO). However, for the year after, it is the cheapest of the three and has a price/earnings-to-growth ratio (PEG) of 0.7. PEG ratios below 1 are typically considered undervalued. Chewy is by far the cheapest in this regard, given its stronger expected earnings growth moving forward.
Despite more than doubling in price over the past year, Chewy is a solid defensive stock with strong growth. Those are qualities that are attractive in an uncertain market, making Chewy's stock a buy.
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Geoffrey Seiler has positions in Chewy. The Motley Fool has positions in and recommends Chewy, Tractor Supply, and Walmart. The Motley Fool has a disclosure policy.
