This One Growth Stock Could Soar 100%—Are You Ready to Risk Missing Out?

As the global economy grapples with various challenges, including the ongoing conflict in Iran, American equity investors find themselves navigating a landscape fraught with uncertainty. At the beginning of the year, concerns over the economy were palpable, but the escalation of geopolitical tensions has intensified these worries, particularly regarding rising oil prices and their potential impact on consumer discretionary spending. Many Americans are already feeling the pinch of high inflation, which has left their budgets stretched thin.

The stock market has shown some resilience, recovering from a steep decline earlier this year. As of April 14, the S&P 500 index, which tracks large-capitalization stocks, recorded a modest gain of 1.7% year-to-date. While this performance is hardly a cause for celebration, it does present an opportunity for investors to consider aggressive purchases of growth stocks, which typically underperform in challenging economic climates. The S&P 500 Growth Index has lagged behind, gaining only 1.2% this year.

For those willing to accept short-term volatility, one stock stands out: Chewy, Inc. (CHWY +2.08%). Initially, many investors may think that Chewy's success was a byproduct of the pandemic, when pet adoption surged as people spent more time at home. Indeed, the company experienced significant revenue growth in those unprecedented times. However, Chewy's long-term growth prospects remain promising, even if it may not reach the extraordinary growth levels witnessed during the height of COVID-19.

Chewy's Growing Customer Base and Strategic Expansion

Chewy's ability to attract and retain customers is a positive indicator of its potential for continued growth. By the end of fiscal 2025, the company reported 21.3 million active customers, representing a 4% increase from the previous year. Active customers are defined as those who have ordered at least once in the past year. Furthermore, the number of customers using Chewy's Autoship service—a subscription program that brings stability to revenue and convenience to consumers—has also seen an uptick. Autoship sales rose by 11.8% year-over-year to $10.5 billion, now accounting for 83.3% of total sales, up from 79.2% the previous year.

In its latest fiscal report ending February 1, Chewy reported solid revenue growth of 8.3%, adjusted for a consistent 52-week period. This growth underscores the company's strong position as it continues to expand its product offerings and services, particularly in the healthcare sector. Chewy has broadened its healthcare services to include prescription medications, telehealth consultations, outsourcing services to veterinarians, and even pet insurance. Recently, Chewy opened ten new clinics, bringing the total to 18, and announced plans to acquire Modern Animal, which operates 29 clinics. This acquisition is expected to add $125 million in annual sales.

Geographical expansion also presents a significant opportunity for Chewy. While it has primarily focused on the American market, the company ventured into Canada in 2023, indicating that it has only begun to tap into the international market.

Market Valuation and Economic Considerations

Despite these positive indicators, Chewy's stock has seen a decrease of 21.6% this year, making it a point of concern for current and potential investors. The decline is not unexpected, given the stock's previously high valuation. The price-to-earnings (P/E) ratio has fallen from the upper 60s to 52, still considered expensive compared to the overall market, where the S&P 500 trades at a P/E multiple of 30. However, this valuation may be justified due to the resilience of pet spending, which tends to hold up well even during economic downturns. A report from the American Pet Products Association noted that while overall consumer spending fell by 12% during the Great Recession from 2008 to 2010, pet spending grew by 12% during the same period.

Given Chewy's robust sales growth potential and its position in a non-cyclical industry, the current drop in its stock price may present an opportune moment for investors looking to buy in. As pet ownership continues to rise and more Americans view their pets as family members, Chewy stands to benefit from a customer base willing to invest in the health and happiness of their furry companions.