Chewy: A Mildly Improbable Investment

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Chewy (CHWY 2.48%) sells a frankly astonishing quantity of things for pets. Over 130,000 different items, in fact. Which, when you consider the sheer variety of what pets require (and occasionally demand), is less surprising and more… well, a logistical achievement. However, despite this impressive inventory and a dedicated customer base, the stock has, over the last five years, performed with the sort of downward trajectory usually reserved for poorly designed space probes. A decline of over 70% is, shall we say, a clear indication that caution is advisable. (It’s also a reminder that the universe is fundamentally indifferent to your investment portfolio.)

The stock chart, a fascinating visual representation of hope and regret, clearly demonstrates how quickly capital can evaporate. But beneath the surface, Chewy is… progressing. Revenue increased year-over-year in Q3 2025, and profits grew at an even more encouraging rate. This is good, obviously. But before rushing to embrace the canine-and-feline-themed financial future, a few considerations are in order.

Is the Growth Fast Enough to Outrun the Inevitable Heat Death of the Universe?

Chewy reported an 8.3% year-over-year revenue increase in the third quarter. This is… a number. A perfectly respectable number, maintained for the last two quarters. However, revenue growth has been slowing, a phenomenon as predictable as the rising of the sun and equally difficult to stop. Chewy doesn’t appear to have many obvious avenues for accelerating this growth. (One might suggest training the pets to order directly online, but the resulting chaos would likely outweigh the benefits.)

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Furthermore, net profit margins hover around 2%. This is… not a number you typically associate with high-growth tech companies, who generally aim for figures in the 10-20% range. Chewy has been stubbornly low-margin for several years. Fiscal 2023 and 2024 saw margins of 0.4% and 3.3% respectively, while Q3 2025 nudged it up to 1.9%. (It’s like watching a particularly determined snail attempt a marathon.) Structurally, Chewy isn’t particularly profitable, with gross margins below 30%, making it challenging to achieve those elusive higher net margins. An 8% revenue increase, therefore, might not be enough to sustain meaningful long-term gains.

Chewy’s Attempt to Wrestle Higher Profit Margins From the Jaws of Reality

Chewy intends to boost profit margins by focusing on high-margin opportunities, specifically in the realm of health and wellness. This makes a certain amount of sense. Pets, it turns out, require healthcare. The recent acquisition of SmartEquine, a company specializing in equine health, is a step in this direction, tapping into a surprisingly profitable niche. This acquisition should enable Chewy to offer subscription-based supplement programs, personalized nutrition plans, and a range of equine products. (One wonders if the horses approve of this level of optimization.)

SmartEquine also aligns with Chewy’s focus on annual recurring revenue and higher customer lifetime values. This ongoing shift could make some of Chewy’s revenue more predictable. (Although predicting the behavior of a golden retriever is rarely a straightforward exercise.)

However, it would be prudent to temper expectations regarding Chewy’s profit margins. The entire pet industry is notorious for its low margins. Other pet stocks, like Trupanion (TRUP +1.08%), Freshpet (FRPT 1.50%), and Petco (WOOF +1.38%), all exhibit similar characteristics. (It seems the pets are collectively negotiating lower prices.)

Chewy’s foray into vet care might boost margins, but Petco also operates in that industry and still struggles with profitability. Despite being an online-only retailer, Chewy doesn’t quite fit the mold of a typical e-commerce stock. It has established a solid niche, but financial robustness doesn’t always translate into outperformance of the S&P 500. (The universe, as previously noted, is fundamentally indifferent.) Chewy is a stock to watch from the sidelines, perhaps with a cup of tea and a healthy dose of skepticism.

Currently, the stock trades at a P/E ratio of 67, which is… optimistic, given the growth rate. (It’s like pricing a slightly used spaceship as if it were brand new.)

Given these factors, it would be prudent to remain on the sidelines until profitability improves and the valuation becomes more… reasonable. Or, at least, less improbable.

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2026-01-25 20:13