Chewy: Riding the Wave of Pet Industry Growth

Chewy is one of the largest online pet retailers in the United States and a leading destination for pet parents looking for everything from food and treats to medication and healthcare services. Known for its convenient home delivery, recurring Autoship program, and strong customer service, the company has built a loyal customer base by making pet care easier and more convenient. As pets are increasingly viewed as family members, Chewy is expanding beyond traditional retail into higher growth areas such as pharmacy, insurance, telehealth, and veterinary clinics. With growing demand for pet products and services and a business model built around recurring purchases, Chewy aims to strengthen its position as the most trusted platform for pet parents while driving long term growth. The question remains: Does this pet care leader deserve a spot in your portfolio?

This is not a financial advice. I am not a financial advisor and I only do these post in order to do my own analysis and elaborate about my decisions, especially for my copiers and followers. If you consider investing in any of the ideas I present, you should do your own research or contact a professional financial advisor, as all investing comes with a risk of losing money. You are also more than welcome to copy me. 

For full disclosure, I should mention that I do not own any shares in Chewy at the time of writing this analysis. If you would like to copy or view my portfolio, you can find instructions on how to do so here. If you want to purchase shares or fractional shares of Chewy, you can do so through eToro. eToro is a highly user-friendly platform that allows you to get started on investing with as little as $50.

The Business

Chewy was founded in 2011 and has grown into the leading pure-play online destination for pet products and services in the United States. The company operates a digital-first business model centered around serving pet parents with a broad ecosystem of products and healthcare services for pets. Unlike traditional pet retailers, Chewy combines e-commerce, subscription-based purchasing, pharmacy, insurance, telehealth, and veterinary services into a single platform designed to support nearly every stage of a pet’s life. The company’s mission is to become the most trusted and convenient destination for pet parents, which it pursues through a combination of broad selection, competitive pricing, fast delivery, and exceptionally personalized customer service. Chewy partners with approximately 4.000 pet industry brands and offers around 190.000 products and service offerings across categories such as pet food, treats, medications, toys, grooming products, bedding, supplements, and wellness products. In addition to third-party brands, the company has developed its own portfolio of private-label offerings, including Frisco, American Journey, Tylee’s, Vibeful, and Get Real, which support differentiation and margin expansion. Chewy organizes its business into three broad categories. The first and most important is consumables, which includes pet food, treats, litter, and supplements. This segment represents the majority of sales and forms the defensive foundation of the business because pet owners purchase these products frequently regardless of economic conditions. The second category consists of hard goods such as toys, crates, beds, apparel, and grooming products, which tend to carry higher margins but are somewhat more discretionary in nature. The third and increasingly important category is pet healthcare, which includes Chewy Pharmacy, prescription medications, telehealth services through Connect with a Vet, insurance and wellness plans under CarePlus, and the company’s growing network of Chewy Vet Care clinics. Healthcare has become an important strategic priority because it offers higher margins, strengthens customer relationships, and increases lifetime value. A defining feature of Chewy’s business model is its Autoship subscription program, which allows customers to automate recurring deliveries of products such as food, medications, and litter. Autoship accounted for more than 83% of net sales in fiscal 2026 and creates highly predictable, recurring revenue that resembles a subscription business. As customers remain on the platform, they tend to spend more over time by gradually expanding into additional product categories and healthcare services, creating a flywheel effect that increases customer lifetime value. Chewy’s digital platform is supported by an extensive logistics infrastructure consisting of strategically located fulfillment centers across North America, allowing the company to deliver to over 80% of the U.S. population overnight and almost 100% within two days. This combination of convenience, scale, and recurring purchasing behavior has helped Chewy grow to more than 21 million active customers and establish itself as one of the largest players in the growing online pet care industry. Chewy’s competitive moat is primarily built on customer loyalty, recurring purchasing behavior, integrated pet healthcare services, and logistics scale. The company’s customer service culture represents one of its strongest advantages and differentiates it meaningfully from more transactional competitors such as Amazon and Walmart. Chewy has built a reputation for providing an unusually high-touch customer experience, with customer service representatives available 24/7, answering calls quickly, and often creating memorable moments through personalized gestures such as handwritten sympathy cards or pet portraits. This emotional connection is particularly powerful in the pet category, where trust, empathy, and relationships matter because consumers increasingly view pets as family members. The result is high customer satisfaction, strong retention, and repeat purchasing behavior. Chewy’s Autoship program further strengthens its moat by embedding recurring purchasing habits directly into customers’ routines. Since pet food, medications, and other consumables are non-discretionary necessities purchased regularly, customers who subscribe to Autoship become significantly more valuable over time and are less likely to switch platforms due to convenience and habit formation. Autoship also provides Chewy with highly predictable revenue and allows the company to optimize inventory, logistics, and fulfillment costs more efficiently than competitors with less recurring demand. Another important competitive advantage is Chewy’s growing healthcare ecosystem, which creates higher switching costs and expands the company’s role beyond a retailer into a trusted healthcare partner for pets. Through the largest online pet pharmacy in the United States, telehealth services, insurance offerings, and veterinary clinics, Chewy increasingly participates in higher-value and more regulated areas of pet spending. The company’s proprietary PracticeHub platform, which integrates with veterinary practices and is used by roughly half of U.S. vet clinics, further strengthens this ecosystem by embedding Chewy into veterinary workflows and making it easier for veterinarians to prescribe medications through the platform. This healthcare integration creates structural advantages that are more difficult for general e-commerce competitors to replicate. Chewy’s fulfillment network also represents an important barrier to entry. Shipping bulky and heavy products such as pet food efficiently is operationally demanding, and Chewy’s scale enables cost-efficient fulfillment and fast delivery across the United States. The company benefits from significant economies of scale, which improve margins and customer convenience while reinforcing its value proposition. Finally, Chewy benefits from a growing data advantage created by its more than 21 million active customers. By collecting detailed information on purchasing behavior, pet health, and customer preferences, the company can improve personalization, optimize advertising for brand partners, develop private-label products, and deepen customer engagement over time. The combination of emotional customer loyalty, recurring subscription-like revenue, healthcare integration, logistics scale, and proprietary customer data creates a powerful ecosystem that is difficult for smaller competitors to replicate. While competition remains intense from Amazon, Petco, PetSmart, and mass retailers, Chewy’s ability to combine convenience, trust, care, and recurring purchasing behavior gives it a differentiated position within the growing online pet industry.

Management

Sumit Singh serves as the CEO of Chewy, a role Sumit Singh assumed in 2018 after initially joining the company as Chief Operating Officer in 2017. Sumit Singh brings a strong background in e-commerce, operations, logistics, and technology-enabled growth, having held senior leadership positions at Amazon and Dell before joining Chewy. This experience has been highly relevant to Chewy’s business model, which depends on efficient fulfillment, strong customer service, recurring purchasing behavior, and the ability to scale a digital platform across millions of pet parents. Sumit Singh holds a master’s degree in engineering from the University of Texas and an MBA from the University of Chicago Booth School of Business. Since becoming CEO, Sumit Singh has led Chewy through a period of significant growth and transformation. Sumit Singh guided the company through its successful IPO in 2019, which raised more than $1 billion, and has helped Chewy grow from an online pet products retailer into a broader pet care ecosystem. Under Sumit Singh’s leadership, Chewy has more than tripled its revenue and expanded into new verticals such as pet pharmacy, pet insurance, telehealth, veterinary practice software, and in-person veterinary services. Sumit Singh has also overseen Chewy’s international expansion with the launch of Chewy Canada in 2023, while continuing to strengthen the company’s core Autoship model, which now represents the vast majority of sales and gives Chewy a highly recurring revenue base. A key part of Sumit Singh’s strategy has been to move Chewy beyond traditional e-commerce and deeper into pet healthcare. This includes the growth of Chewy Pharmacy, the launch of Connect with a Vet, the expansion of CarePlus insurance and wellness plans, the development of PracticeHub for veterinary practices, and the rollout of Chewy Vet Care clinics. More recently, Chewy has also announced the acquisition of Modern Animal, which further supports Sumit Singh’s ambition to build a more integrated pet healthcare ecosystem. This strategic direction is important because healthcare can deepen customer relationships, increase lifetime value, and make Chewy less dependent on simply selling third-party pet food and supplies online. Sumit Singh’s leadership has also been recognized externally. In 2020, Sumit Singh was named to the Bloomberg 50, which highlights leaders shaping global business, and Sumit Singh was also included in Comparably’s list of Best CEOs. Beyond Chewy, Sumit Singh serves on the Board of Directors at Booking Holdings, which further reflects Sumit Singh’s experience in consumer internet platforms and digital marketplaces. Chewy has also received several workplace and customer service recognitions during Sumit Singh’s tenure, supporting the company’s reputation for a strong customer-focused culture. Given Sumit Singh’s background in e-commerce operations, customer experience, and technology-driven growth, Sumit Singh appears well suited to lead Chewy through its next phase. The challenge ahead will be to keep strengthening profitability while expanding into healthcare, growing internationally, and defending Chewy’s customer loyalty against large competitors such as Amazon, Walmart, Petco, and PetSmart. However, Sumit Singh’s track record so far suggests that Sumit Singh has been effective in scaling Chewy while preserving the customer-obsessed culture that made the company stand out in the first place.

The Numbers

The first number we will look into is the return on invested capital, also known as ROIC. We want to see a 10-year history, with all numbers exceeding 10% in each year. Since Chewy completed its IPO in 2019, we only have meaningful ROIC data beginning in fiscal 2020, and fiscal 2020 itself was not a full year due to the company’s reporting timeline. Chewy’s ROIC history has been volatile, ranging from very high positive figures to negative levels, which at first glance may appear concerning. However, there are several reasons why these numbers should be interpreted carefully. First, Chewy spent many of its earlier years prioritizing growth over profitability. The company invested heavily in building its customer base, fulfillment network, technology, and healthcare offerings while operating with very thin margins or losses. Since ROIC depends on profits, periods where the company lost money naturally resulted in weak or negative returns on invested capital, even as the business itself continued growing and improving. Second, Chewy was still a relatively young company during much of this period. When a business has not yet reached scale, even relatively small changes in profits can cause large swings in ROIC from year to year. This helps explain why Chewy reported unusually high ROIC in one year and deeply negative ROIC in another, even though the underlying business did not change as dramatically as the numbers suggest. For this reason, I believe it makes more sense to focus on the trend in recent years rather than the full historical record. Since fiscal 2023, Chewy’s ROIC has shown signs of becoming more normalized, improving from 9,2% in fiscal 2023 to 10,9% in fiscal 2025 and reaching 24,7% in fiscal 2026. This suggests that the business is entering a more mature phase where profitability, operational efficiency, and capital allocation are improving. The business model is also becoming more stable due to Autoship, which now represents the vast majority of sales and provides highly recurring revenue from necessities such as pet food and medication. Looking ahead, I expect Chewy’s ROIC to become significantly more stable than it has been historically because the company is now larger, more profitable, and operating with steadier economics. The extreme swings in earlier years were largely driven by Chewy still being in an earlier stage of development. That said, I do not expect ROIC to remain as volatile as it has historically been, nor do I believe the unusually high figure reported in fiscal 2021 should be viewed as representative. Instead, I believe Chewy has the potential to consistently generate attractive ROIC above 10% and possibly meaningfully higher over time if management successfully expands higher-margin businesses such as pharmacy, veterinary care, insurance, advertising, and private-label products. The key determinant will be Chewy’s ability to gradually shift more of its business toward these higher-margin services while maintaining strong customer loyalty and recurring purchasing behavior.

The next numbers are the book value + dividend. In my old format this was known as the equity growth rate. It was the most important of the four growth rates I used to use in my analyses, which is why I will continue to use it moving forward. As you are used to see the numbers in percentage, I have decided to share both the numbers and the percentage growth year over year. To put it simply, equity is the part of the company that belongs to its shareholders – like the portion of a house you truly own after paying off part of the mortgage. Growing equity over time means the company is becoming more valuable for its owners. So, when we track book value plus dividends, we’re essentially looking at how much value is being built for shareholders year after year. Since Chewy completed its IPO in 2019 and spent several years prioritizing growth over profitability, the company initially had negative equity. This means that accumulated losses from earlier years outweighed the capital that had been built up in the business. While negative equity can sometimes be a warning sign, it is not unusual for younger, fast-growing companies that invest heavily in expansion before becoming consistently profitable. In Chewy’s case, the company focused on building fulfillment infrastructure, acquiring customers, investing in technology, and expanding into healthcare services, which weighed on profitability in the early years. Chewy’s equity turned positive in fiscal year 2022, mainly because the company reached profitability and began generating positive net income. Since profits are retained in the business, this helped rebuild the balance sheet and marked an important turning point in Chewy’s development. From fiscal year 2022 through fiscal year 2024, equity increased significantly as profitability improved and the company generated stronger cash flows. The very large percentage increases seen in fiscal years 2022, 2023, and 2024 should also be viewed in context because they came from a relatively small starting point. When equity is still low, even moderate improvements in profitability can create very large percentage increases. Fiscal year 2025 stands out as an exception, as equity declined despite the company reporting solid profits. At first glance this may seem concerning, but I do not view it as a sign of weakening business fundamentals. The decline was primarily driven by capital allocation decisions, including share repurchases and accounting-related movements tied to employee compensation programs, rather than deterioration in the underlying business. In other words, Chewy remained profitable and continued improving operationally even though reported equity temporarily declined. Encouragingly, equity rebounded strongly in fiscal year 2026, increasing by more than 90%, which suggests that fiscal year 2025 was more of a temporary setback than the beginning of a negative trend. Looking ahead, I expect Chewy’s equity to continue growing over time, although probably not in a perfectly straight line. The company has now entered a more mature phase where profitability and free cash flow generation appear more consistent than in the past. As long as Chewy continues generating profits and successfully expands into higher-margin businesses such as pharmacy, veterinary care, insurance, advertising, and private-label products, equity should gradually increase. That said, periods of slower growth or temporary declines may still occur if management prioritizes share repurchases or makes larger investments to support long-term growth. Overall, I view the development in equity as encouraging because it reflects Chewy’s transition from a fast-growing but unprofitable company into a more financially mature business that is increasingly creating value for shareholders.

Finally, we will analyze the free cash flow. Free cash flow, in short, refers to the cash that a company generates after covering its operating expenses and capital expenditures. I use levered free cash flow margin because I believe that margins provide a better understanding of the numbers. Free cash flow yield refers to the amount of free cash flow per share that a company is expected to generate in relation to its market value per share. Chewy’s free cash flow development has been very encouraging in recent years. While the company generated little or no free cash flow in its earlier years as a public company, free cash flow has improved significantly since fiscal year 2023 and has increased every year over the past four years, reaching a record level in fiscal year 2026. Levered free cash flow margin has also steadily improved over the same period, suggesting that Chewy is becoming increasingly efficient at converting revenue into cash. This development is important because it shows that Chewy is no longer simply growing revenue, but also becoming meaningfully more profitable and financially mature. There are several reasons why free cash flow has improved so significantly. First, Chewy has become more profitable as management has focused more on efficiency and cost discipline. The company has consistently expanded margins while growing revenue, meaning that profits are increasing faster than sales. Second, Chewy has improved the economics of its business mix. Higher-margin areas such as pharmacy, health and wellness products, sponsored advertisements, insurance, and private-label products are becoming a larger part of the business. These categories tend to generate stronger profitability than traditional pet food and hard goods, which supports both margins and cash generation. Third, Chewy has become more efficient operationally. Management has highlighted improvements in inventory management, automation, and the use of artificial intelligence across fulfillment and customer service operations. Investments in fulfillment centers are increasingly supporting scale efficiencies, meaning the company can serve more customers without costs growing at the same pace as revenue. This operational leverage is an important reason why free cash flow has expanded so meaningfully in recent years. Another important aspect of Chewy’s business model is Autoship, which now represents the vast majority of sales. Because products such as pet food and medication are recurring necessities, Autoship provides highly predictable revenue and cash flow. This creates a more stable business than many traditional retailers and gives management better visibility into future demand. Looking ahead, I believe free cash flow is likely to continue growing over time, although probably not in a perfectly straight line. Management has guided for continued profitability and free cash flow expansion in fiscal year 2026 and beyond, supported by stronger margins, fulfillment efficiencies, and increasing contributions from higher-margin businesses. Chewy has also stated that artificial intelligence and automation are expected to reduce operating costs further over the coming years, which could support additional margin expansion. That said, growth in free cash flow may occasionally slow depending on the level of investments the company chooses to make. Chewy continues to invest in areas such as veterinary clinics, healthcare services, technology infrastructure, fulfillment capabilities, and international expansion, all of which may temporarily reduce cash generation in certain periods. However, these investments are intended to strengthen the business and support future growth rather than simply maintain current operations. Chewy primarily uses its free cash flow in three ways. First, the company reinvests in the business by expanding healthcare offerings such as pharmacy, telehealth, and Chewy Vet Care clinics while also investing in technology, fulfillment infrastructure, automation, and customer acquisition. Second, Chewy maintains a strong balance sheet to preserve financial flexibility and support long-term growth opportunities. Third, the company has increasingly started returning cash to shareholders through share repurchases. The free cash flow yield suggests that Chewy is trading at its most attractive valuation since the IPO. However, we will revisit valuation later in the analysis.

Debt

Another important aspect to consider is the level of debt. It’s crucial to determine whether a business has manageable debt that could realistically be repaid within a three year period. This is typically calculated by dividing total long term debt by earnings. However, in Chewy’s case, it is not possible to calculate this ratio because the company has no debt. Chewy has remained debt free since its IPO, which I view as a significant strength. This means the company does not have to spend money on interest payments and gives management greater flexibility to invest in growth initiatives such as healthcare services, veterinary clinics, technology, and fulfillment capabilities. It also reduces financial risk during more challenging economic periods. In addition to having no debt, Chewy ended fiscal year 2025 with a strong cash position of approximately $879 million. This provides the company with a financial cushion and gives management flexibility to continue investing in the business, pursue acquisitions, repurchase shares, or navigate temporary slowdowns without needing to rely on outside financing. Given Chewy’s improving profitability, growing free cash flow, and debt free balance sheet, I do not expect debt to become a concern going forward.

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Risks

Competition is a risk for Chewy because the pet products and services industry is highly competitive and continues to evolve rapidly as more spending shifts online. Chewy competes across several categories, including online retailers, pet specialty stores, supermarkets, warehouse clubs, mass merchants, drugstores, veterinarians, and pet pharmacies. This means the company is not only competing against traditional pet-focused businesses such as Petco and PetSmart but also against some of the largest retailers in the world, including Amazon and Walmart. Many of these competitors are significantly larger than Chewy and have greater financial resources, stronger brand recognition, larger customer bases, and more extensive logistics networks. These advantages allow competitors to invest more heavily in marketing, offer aggressive promotions, lower prices, and adapt quickly to changing consumer behavior or new technologies. In particular, Amazon and Walmart represent meaningful competitive threats because both companies compete aggressively on price and convenience. Amazon benefits from its Prime ecosystem, which provides fast shipping and encourages customer loyalty across many categories, including pet products. Walmart combines competitive pricing with a large physical store footprint, allowing customers to order online and pick up products the same day. Because pet food and medication are often recurring necessities, convenience and price matter greatly to consumers, meaning Chewy must continue providing a strong value proposition to maintain customer loyalty. Another important competitive risk is price transparency. Online shopping allows consumers to compare prices across multiple retailers in real time, making it easier for pet owners to switch platforms if they find better deals elsewhere. This limits Chewy’s ability to raise prices and creates pressure on margins, especially during periods of economic uncertainty when consumers become more focused on saving money. If large competitors choose to sacrifice margins in order to gain market share, Chewy may face pressure to offer more discounts or promotions to remain competitive, which could hurt profitability. Competition in pet healthcare also represents a meaningful risk. Chewy increasingly relies on pharmacy, insurance, telehealth, and veterinary care as important growth drivers because these businesses tend to have higher margins than traditional retail. However, this also puts Chewy in direct competition with veterinarians, traditional pet pharmacies, and other online healthcare providers. Veterinarians have a natural advantage because many pet owners prefer the convenience of purchasing medications during office visits. Some competitors may also benefit from longer operating histories, stronger relationships with suppliers, or lower costs, allowing them to compete more aggressively. In addition, some competitors are forming partnerships or alliances that may improve their buying power and help them negotiate lower prices with suppliers. Another risk is that Chewy’s competitive advantage depends heavily on maintaining its reputation for exceptional customer service. The company has differentiated itself through highly personalized customer experiences, fast delivery, and strong customer support. However, maintaining this level of service becomes more difficult as the business grows. If Chewy fails to maintain its customer experience or if competitors successfully replicate parts of its model, the company could struggle to retain customers and maintain its strong recurring purchasing behavior through Autoship.

Reliance on third party suppliers is a risk for Chewy because the company does not manufacture most of the products it sells and instead depends on a large network of suppliers to provide everything from premium pet food and treats to accessories, medications, and healthcare products. This means Chewy’s ability to serve customers depends heavily on suppliers continuing to provide products at attractive prices and in sufficient quantities. If suppliers experience production problems, supply shortages, transportation disruptions, or higher costs, Chewy may struggle to keep important products in stock or may face pressure on profitability. This is especially important because many pet owners are highly loyal to specific brands of pet food and are often reluctant to switch products for their pets. If Chewy is temporarily unable to offer a customer’s preferred brand, there is a meaningful risk that the customer may purchase elsewhere and potentially shift future purchases to a competing platform. Some of Chewy’s suppliers also have limited production capacity, which creates another risk as the company continues growing. If demand increases quickly, suppliers may not be able to keep up, leading to delays or inventory shortages. Chewy has already experienced periods where suppliers were unable to deliver products on time or at expected prices. While management viewed these disruptions as temporary, they illustrate an important vulnerability that could reappear during periods of supply chain stress, strong demand growth, or broader economic disruption. Another important risk is supplier concentration and bargaining power. If one or more significant suppliers choose to stop selling products through Chewy, reduce favorable pricing arrangements, or remove marketing support, it could negatively affect both product selection and profitability. Some suppliers currently provide financial incentives, promotional support, and preferred pricing, which help support margins. If these incentives are reduced or instead offered more aggressively to competitors, Chewy’s competitive position could weaken. There is also a longer-term competitive risk if premium pet food brands become more widely available through supermarkets, warehouse clubs, or discount retailers. One of Chewy’s advantages has historically been its broad assortment of premium pet products that are not always easy to find elsewhere. If these brands become easier to purchase at mass retailers, particularly at lower prices, customers may have less reason to shop through Chewy, which could pressure both sales growth and margins.

Macroeconomic factors are a risk for Chewy because even though the pet industry tends to be more resilient than many other consumer categories, it is not completely immune to economic downturns or changes in consumer behavior. Many pet owners view their pets as family members, which means spending on essentials such as food, medication, and basic healthcare tends to remain relatively stable even during more difficult economic periods. However, broader economic conditions can still affect both customer spending patterns and Chewy’s profitability. Factors such as inflation, tariffs, rising interest rates, higher unemployment, and weaker consumer confidence can all influence how much consumers spend on pet products and services. One important risk is that customers may become more price sensitive during periods of economic pressure. While necessities such as pet food and medication are generally more defensive, customers may choose cheaper brands, delay purchases of more expensive products, or reduce spending on discretionary categories such as toys, beds, pet technology, grooming products, or premium accessories. This matters because these discretionary categories often carry higher margins than basic consumables. If customers shift spending toward lower-priced essentials, Chewy may continue growing sales while still facing pressure on profitability. Inflation also represents a meaningful risk. If the cost of pet food, packaging, transportation, wages, or other operating expenses increases faster than Chewy can pass those costs on to customers, margins could come under pressure. While the pet industry benefits from a pricing structure where many suppliers set minimum pricing guidelines, which helps reduce destructive price competition, there are still limits to how much higher prices consumers are willing to accept. In a tougher consumer environment, aggressive price increases may lead customers to seek cheaper alternatives or compare prices more actively across retailers. Higher transportation and logistics costs can also negatively affect profitability because Chewy ships large and heavy products such as pet food and litter directly to customers’ homes. Rising fuel costs or supply chain disruptions can therefore increase delivery expenses and reduce margins if those costs cannot be fully offset elsewhere. Tariffs may create additional challenges by increasing the cost of imported products or materials used throughout the supply chain. Another important risk is that macroeconomic weakness can affect the broader pet industry itself. Slower economic growth, weaker consumer confidence, or prolonged financial pressure may reduce new pet adoptions or lower overall spending growth across the industry. This could limit Chewy’s ability to attract new customers or expand spending per customer. Management has also acknowledged that while the pet category remains resilient, consumers have appeared increasingly financially stretched in recent periods, highlighting that even pet spending can become pressured when household budgets tighten.

Reasons to invest

The powerful human animal bond is a reason to invest in Chewy because it creates a strong and durable long-term growth opportunity that aligns closely with the company’s business model. Over the past several decades, pets have increasingly become viewed as members of the family rather than simply animals living in the home. This shift, often referred to as pet humanization, has fundamentally changed how people spend money on their pets. Pet owners are increasingly willing to invest in higher quality food, premium products, preventive healthcare, insurance, supplements, diagnostics, and veterinary care in order to improve both the quality and length of their pets’ lives. Because Chewy operates across many of these categories, the company is well positioned to benefit from this long-term trend. Research consistently shows that the majority of pet owners consider their pets to be family members, and many increasingly refer to themselves as pet parents rather than owners. This emotional connection matters because it changes purchasing behavior. Consumers are often willing to spend more on their pets than they otherwise might during difficult economic periods, especially when it comes to food, medication, and healthcare. Management has emphasized that pet remains a uniquely emotional category where trust, relationships, and empathy matter significantly more than in most retail categories. This aligns particularly well with Chewy’s customer-focused approach, which has been built around exceptional service, convenience, and emotional connection. A large part of this trend is also being driven by younger generations. Millennials and Gen Z now represent a growing share of pet owners, and many of these consumers tend to view pets as central members of the household. Some are delaying home ownership or having children later in life, which often increases the importance of pets emotionally and financially. As a result, spending per household on pets has continued increasing over time, creating an attractive long-term tailwind for companies operating in the space. Importantly, the human animal bond also contributes to the resilience of the pet industry. Unlike many consumer categories, pets continue eating regardless of economic conditions, and pet owners generally prioritize essentials such as food and medication even when budgets become tighter. Management has noted that pets do not eat more in one quarter or less in another, creating a level of recurring stability that is relatively unusual within consumer businesses. This recurring and non discretionary nature of spending supports more stable demand and makes the pet industry more defensive than many other retail categories. Another important aspect is that stronger emotional attachment often leads to higher lifetime spending per pet. Pet parents increasingly seek products and services aimed at improving health, longevity, and quality of life. This supports demand for premium pet food, prescription medications, telehealth, insurance, wellness products, and veterinary care, all areas where Chewy has expanded aggressively in recent years. The company’s growing healthcare ecosystem therefore directly benefits from the trend toward treating pets more like family members.

Pet healthcare is a reason to invest in Chewy because it represents one of the company’s largest growth opportunities while also strengthening customer loyalty, profitability, and competitive advantages. Historically, Chewy was primarily an online retailer focused on pet food, treats, and supplies. However, over time the company has expanded into a much broader pet healthcare ecosystem that now includes pharmacy, prescription medications, telehealth, insurance, wellness products, veterinary diet products, and in person veterinary care through Chewy Vet Care clinics. This expansion is strategically important because healthcare tends to be both higher margin and more recurring than traditional retail categories. As pet owners increasingly treat animals like family members, spending on healthcare continues to grow, creating a strong long term tailwind for companies positioned to benefit from this trend. One of the clearest examples of this opportunity is Chewy Pharmacy, which has grown into the largest pet pharmacy in the United States. Healthcare has already become a major growth driver for the company. Management has stated that approximately one third of Chewy’s incremental revenue growth between 2019 and 2024 came from healthcare-related categories. Pharmacy is particularly attractive because it materially increases customer spending. When an existing Chewy customer begins using pharmacy services, annual spending tends to increase by roughly $300 to $500, while the cost of acquiring that additional spending is very low because the customer is already part of the Chewy ecosystem. Today, only around one quarter of Chewy’s customer base uses pharmacy services, suggesting meaningful room for future growth as adoption expands. Importantly, healthcare categories also generate structurally higher margins than the core retail business. Management has highlighted that pharmacy margins are significantly higher than traditional pet retail, meaning that continued healthcare growth should support stronger profitability and free cash flow over time. Another important reason to be optimistic about healthcare is the rollout of Chewy Vet Care clinics. While still early, results have exceeded management’s expectations. Chewy expanded its clinic footprint to 18 locations across five states by the end of fiscal year 2026 and plans to continue scaling the business, with further acceleration supported by the acquisition of Modern Animal. Management believes veterinary care represents a powerful long term growth vector because clinics create benefits across the entire Chewy ecosystem. Approximately 40% of clinic customers are new to Chewy, making clinics an effective customer acquisition channel. At the same time, existing customers who visit clinics often begin purchasing more products and services through chewy.com, including pharmacy, supplements, and food. This creates a flywheel effect where healthcare deepens customer relationships and increases spending over time. In fact, management has stated that customers connected to Chewy Vet Care are currently the fastest-growing spending cohorts in the business.

The continued shift toward e commerce is a reason to invest in Chewy because it creates a powerful long term tailwind that aligns closely with the company’s strengths in convenience, recurring purchasing behavior, logistics, and customer relationships. The pet industry has experienced a meaningful shift from physical stores to online purchasing over the past decade as consumers increasingly prioritize convenience, home delivery, price transparency, and automatic replenishment. Online penetration in pet food and supplies has risen significantly in recent years and management expects this trend to continue as more consumers become comfortable ordering recurring necessities online. This shift benefits scaled digital platforms like Chewy, which have already built trusted customer relationships, strong logistics capabilities, and highly personalized shopping experiences. One of the biggest reasons this trend is attractive for Chewy is the company’s Autoship program, which creates highly recurring and predictable revenue. Autoship allows customers to automatically receive recurring deliveries of products such as pet food, medication, litter, and treats without needing to reorder manually each time. Because pets require food and medication consistently, this creates a natural subscription-like model that strengthens customer retention and spending over time. Autoship represented more than 83% of total net sales in fiscal year 2026 and continues to grow faster than overall revenue. Importantly, customers using Autoship are not passive customers. Instead, they tend to deepen their engagement with Chewy over time by adding more categories such as pharmacy, supplements, healthcare products, and premium food. This creates a powerful flywheel where recurring purchasing behavior drives higher customer lifetime value. Management has repeatedly shown that customer spending becomes increasingly predictable as cohorts mature. Customers typically spend more with Chewy the longer they remain on the platform, with spending increasing steadily over multiple years as trust and convenience strengthen the relationship. Some of Chewy’s oldest customer cohorts now spend more than $1.000 annually. This predictable cohort behavior provides strong visibility into future growth and creates a recurring layer of revenue that becomes more valuable over time. Another important advantage is convenience. Pet products, especially food and litter, are often bulky, heavy, and inconvenient to transport home from physical stores. Chewy solves this problem through fast home delivery, broad assortment, and recurring replenishment. The company can deliver to most U.S. households within one or two days, making it easier for customers to remain loyal once purchasing habits are established. Because pet owners frequently buy the same products repeatedly, convenience becomes especially important and strengthens switching costs over time. Chewy also appears well positioned to benefit from the next evolution of digital commerce. Management believes that emerging AI driven shopping assistants and agentic commerce could increase product discovery and direct more high intent traffic toward trusted platforms. Rather than viewing this as a threat, Chewy sees it as an opportunity because success in pet commerce is not simply about who controls the search interface but who ultimately fulfills the order. Management has stated that Chewy is actively building integrations with emerging platforms to ensure the company remains accessible wherever pet parents choose to shop. Because Chewy combines competitive pricing, a trusted brand, healthcare services, recurring subscriptions, and extensive pet related content, management believes the company is well positioned to remain the preferred destination behind these future transactions. Another reason the shift toward e commerce is attractive is Chewy’s growing ecosystem of engagement tools. In addition to Autoship, the company has launched Chewy+, a membership offering designed to increase customer engagement and spending over time. While still early, management has highlighted encouraging signs that Chewy+ members spend more and show stronger purchasing behavior. Sponsored advertising also benefits from e commerce growth because suppliers value Chewy’s highly engaged audience, strong customer data, and recurring purchasing patterns. Since Chewy sits close to purchase decisions and repeat buying behavior, suppliers increasingly have strong incentives to advertise on the platform.

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Valuation

Now it is time to calculate the share price. I perform three different calculations that I learned at a Phil Town seminar. If you want to make the calculations yourself for this or other stocks, you can do so through the tools page on my website, where you have access to all three calculators for free.

The first is called the Margin of Safety price, which is calculated based on earnings per share (EPS), estimated future EPS growth, and estimated future price-to-earnings ratio (P/E). The minimum acceptable rate of return is 15%. I chose to use an EPS of 0,52, which is from the fiscal year 2026. I have selected a projected future EPS growth rate of 15%. Finbox expects EPS to grow by 19,9% in the next five years, but I use 15% as the highest. Additionally, I have selected a projected future P/E ratio of 30, which is double the growth rate. This decision is based on Chewy's historically higher price-to-earnings (P/E) ratio. Finally, our minimum acceptable rate of return has already been established at 15%. After performing the calculations, we determined the sticker price (also known as fair value or intrinsic value) to be $15,60. We want to have a margin of safety of 50%, so we will divide it by 2. This means that we want to buy Chewy at a price of $7,80 (or lower, obviously) if we use the Margin of Safety price.

The second calculation is known as the Ten Cap price. The rate of return that a company owner (or stockholder) receives on the purchase price of the company essentially represents its return on investment. The minimum annual return should be at least 10%, which I calculate as follows: The operating cash flow last year was 662, and capital expenditures were 129. I attempted to analyze their annual report to calculate the percentage of capital expenditures allocated to maintenance. I couldn't find it, but as a rule of thumb, you can expect that 70% of the capital expenditures will be allocated to maintenance purposes. This means that we will use 90 in our calculations. The tax provision was 41. We have 415 outstanding shares. Hence, the calculation will be as follows: (662 – 90 + 41) / 415 x 10 = $14,77 in Ten Cap price.

The final calculation is called the Payback Time price. It is a calculation based on the free cash flow per share. Chewy's Free Cash Flow Per Share at $1,36 and a growth rate of 15%, if you want to recoup your investment in 8 years, the Payback Time price is $21,47.

Conclusion

I believe that Chewy is an intriguing company with great management. The company has built its moat through customer loyalty, recurring purchasing behavior, integrated pet healthcare services, and logistics scale. ROIC has been volatile historically due to Chewy’s earlier years of losses and rapid investment, but it has stabilized above 10% in recent years and is expected to remain above that level moving forward as the business matures and profitability improves. Free cash flow has grown every year over the past four years and is expected to continue growing as Chewy expands margins and benefits from higher contributions from healthcare, advertising, and private-label products. Competition is a risk for Chewy because the company operates in a highly competitive market against much larger players such as Amazon and Walmart, as well as pet specialists, pharmacies, and veterinarians. These competitors can compete aggressively on price, convenience, and marketing, while price transparency online makes it easier for customers to switch platforms, potentially putting pressure on Chewy’s growth, margins, and customer loyalty. Reliance on third party suppliers is also a risk because Chewy depends on external suppliers to provide many of the products customers expect, particularly premium pet food and healthcare items. If suppliers face disruptions, reduce support, or offer better pricing and products to competitors, Chewy could face inventory shortages, weaker margins, and potentially lose customers who are loyal to specific brands. Macroeconomic factors are another risk because even though pet spending tends to be relatively resilient, economic pressure can still affect customer behavior and profitability. Inflation, weaker consumer confidence, or rising costs may cause customers to trade down to cheaper products or reduce discretionary pet spending, while higher shipping, labor, and product costs could pressure margins. The powerful human animal bond is a reason to invest in Chewy because pets are increasingly viewed as family members, leading owners to spend more on premium food, healthcare, insurance, and wellness products even during tougher economic periods. Since Chewy operates across many of these categories and focuses heavily on convenience, trust, and customer relationships, the company is well positioned to benefit from this durable long term trend. Pet healthcare is another reason to invest because it represents a large and growing opportunity that supports higher margins, stronger customer loyalty, and recurring revenue. Through pharmacy, telehealth, insurance, and Chewy Vet Care clinics, Chewy is building an ecosystem that increases customer spending over time while benefiting from the long term trend of rising pet healthcare spending. The continued shift toward e commerce is also a reason to invest because more pet owners are prioritizing convenience, home delivery, and recurring purchases, trends that align closely with Chewy’s strengths. Through its Autoship program, fast delivery network, and growing ecosystem of services, Chewy benefits from highly predictable recurring revenue while deepening customer relationships and increasing spending over time. While there are many things to like about Chewy, I personally believe there are better opportunities in the market. Hence, I will not be investing in Chewy at this time.

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