Online pet food retailer Chewy (NYSE:CHWY) hasn’t been immune from the thrashing tech stocks have taken over the past two weeks. After closing at an all-time record high of $61.18 on Sept. 4, Chewy stock is down nearly 13%. This is a case where the dip is a serious buying opportunity.
The market may be down on tech companies, but people are shopping online more than ever and spending on pets has proven to be resilient to tough economic times. Not to mention the big boost in pet adoptions during the novel coronavirus pandemic lockdowns.
In other words, Chewy stock has an awful lot going in its favor. Chewy earns an ‘A-rating’ in my Portfolio Grader. If you were looking for an opportunity to snap up shares, now would be the time to think about it.
People Increasingly Shopping Online and Adopting Pets
Chewy stock had been on a slow slide since its mid-2019 initial public offering. However, once it recovered from the March meltdown that affected virtually all stocks, CHWY has been on a tear. Up until Sept. 4, it had gained 135%. It was up 167% since its post-IPO low of $22.89 last November.
Two factors combined to propel Chewy.
First, the coronavirus pandemic — and especially the lockdown — kicked off a period where online shopping exploded. It was already popular, but with brick & mortar stores forced to close, online shopping became the only option for a short time.
That popularity continued as consumers enjoyed the convenience of online shopping. In July, U.S. online sales were up 55% year-over-year, and they remained up 42% year-over-year in August. In all, the pandemic is estimated to have resulted in American consumers spending an additional $107 billion on online shopping between March and August.
As an online retailer, Chewy is definitely benefiting from that trend. The second trend is more specific to the pet food retailer. With people stuck at home self-isolating and looking for companionship, pet adoptions have been way up since the start of the pandemic.
History Shows Pet Spending Is ‘Recession-Proof’
Another reason why Chewy is so enticing? Americans are spending more than ever on their pets. According to figures from APPA (the American Pet Products Association), in 2010 the pet industry in the U.S. was worth $48.3 billion. In 2019, APPA says that had increased to $95.7 billion — including $36.9 billion on food and treats alone.
History has also proven that spending on pets is about as ‘recession-proof’ as discretionary consumer spending gets. If the coronavirus pandemic kicks off an extended recession, expect consumers to tighten their belts. They’re likely to cut spending on things like travel, new cars, restaurant meals, and clothing. But pet supplies? During the Great Recession, nearly 70% of pet owners said they would not cut back on the amount of money they spent on their pets, regardless of the economy. Spending numbers from the time supported that sentiment.
Chewy’s Q2 Earnings
Chewy’s most recent earnings show how the company has benefited from the surges in online shopping and pet ownership.
In August, Chewy reported second quarter revenue of $1.7 billion, up 47% year-over-year. Chewy significantly narrowed its operating loss from $83.1 million in the second quarter of 2019, to $32.3 million. Diluted losses of 8 cents per share significantly beat Wall Street’s estimate of a 16-cent per share loss.
Bottom Line on Chewy Stock
Chewy stock has had a rough several weeks, but it has every reason to resume its growth trajectory. It’s riding the online shopping wave and every uptick in pet ownership just adds to its potential client base. Even if tough economic times are coming, its customers are likely to keep on spending.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
