1. Currently Dropped by 74%, This Growth Stock Could Be a Purchase Opportunity
Obtaining better-than-average yields isn't rocket science. It boils down to owning the right shares of the appropriate companies in the right sector at the right moment.
While it's not rocket science, it's certainly not a walk in the park. The challenge lies in staying patient enough to wait for such opportunities and then sticking with them despite any uncertainty. It can also be just as tough to keep your focus when seemingly more promising investment prospects arise.
Given this backdrop, if you're on the lookout for a high-growth stock to purchase while it's currently 74% below its all-time high, give Chewy (CHWY 1.22%) some consideration, if not add it to your portfolio. Post-pandemic, it appears the market is finally acknowledging its past, present, and future merits.
Chewy is unique in a crucial aspect
Even if you don't reside in one of the two-thirds of U.S. dwellings hosting a pet, you're probably familiar with the brand name due to a plethora of TV ads. Since 2011, Chewy has provided pets with food, toys, and medication. With a market value of $13 billion, the company generates approximately $11 billion in annual sales.
What might not be immediately apparent, however, is that unlike its counterparts like Petco, PetSmart, and Tractor Supply's Petsense, Chewy doesn't operate any physical stores for consumers to visit. It's a strictly online operation.
At first glance, it might seem like a missed opportunity given that e-commerce has significantly impacted brick-and-mortar retailing, yet the majority of shopping within the U.S. still occurs in stores. The pet supply sector is no exception.
Surprisingly, this decision has proven to be strategic in the long run.
Unlike PetSmart and Petco (and to a lesser degree, Petsense), which established their physical locations before pet-care e-commerce even existed, Chewy was developed with an exclusive focus on online sales. It is optimized for online shopping and the logistics required. This is in contrast to most pet store chains, which manage inefficient and oversized physical locations.
The potential for growth in the online portion of the pet-care sector remains vast.
Ample room for growth awaits
As with any other shopping category, a considerable portion of consumers' pet expenditures has shifted to online platforms. However, a significant portion remains offline due to the weight and perishable nature of large bags or cases of pet food.
This trend is changing, though, as online retailers gain scale, expertise, and information. Companies like Chewy are now better positioned to provide consumers with the price and convenience they increasingly desire.
The numbers suggest as much. While consumer research firm Packaged Facts projects the U.S. pet market will grow 4.9% to $152.3 billion this year, the online segment is performing much better. A report by MetricsCart predicts the online pet industry will grow at a rate of 12.3% by 2024. Business Research Insights estimates that the worldwide pet-care e-commerce market will grow annually at a rate of 11.4% through 2032, with the majority of this growth happening within the U.S. market served by Chewy. According to Bloomberg Intelligence, the U.S. online pet-care market is projected to double between 2019 and 2030, reaching a value of $60 billion.
Already the leading player in the U.S. online pet supply market (Bloomberg Intelligence estimates Chewy's market share at 36%), Chewy is well-positioned to capture a significant share of this growth, potentially amplifying its top and bottom-line growth.
Chewy stock presents more reward than risk
The backstory and optimistic outlook raise the question: Why is Chewy stock down 74% from its peak? Blame it on extraordinary--but temporary--circumstances.
Like many other publicly traded e-commerce companies, Chewy's stock surged during and due to the COVID-19 pandemic. It wasn't until 2022 that investors finally realized that while the company's potential was significant, the stock's price had risen too far and too fast given the results being produced at the time.
As often happens, however, the sellers overshot their mark; the bear market of 2022 aided them. The recovery that started for Chewy stock in early 2023 partially corrected this overzealous selling, but shares are still arguably undervalued given the bigger-picture opportunity ahead.
Of course, there's risk involved. Chewy is barely profitable, and even though it's the market leader in online pet supply sales, it's competing against much larger companies like Walmart and the aforementioned Amazon. These competitors have the financial resources to target a smaller competitor.
However, Chewy's smaller size and narrow focus are proving to be more of a competitive advantage than a disadvantage and are unlikely to change in the foreseeable future. Now is the time to consider Chewy before more investors catch on.
Investing in Chewy's stock could provide significant returns, as the company has a strong focus on online sales and a leading position in the U.S. online pet supply market. Despite being undervalued at 74% below its all-time high, the company's potential for growth remains vast, with the online pet-care market projected to double between 2019 and 2030. On the other hand, investors should consider the risks involved, such as Chewy's lack of profitability and competition from larger companies like Walmart and Amazon. Managing finances wisely and making calculated investing decisions are crucial in this context.
