Momentum has continued to smile on Chewy (NYSE:CHWY), an e-commerce firm specializing in pet food and other pet-related products, with analysts at research firm YipitData anticipating that the company will beat third-quarter estimates. CHWY stock gained about 2% in the early afternoon session on Thursday after a blistering performance yesterday. Over the trailing five days, CHWY gained 20%.
Experts at YipitData anticipate $2.46 billion in sales, representing an 11%-plus increase from the year-ago period, according to Yahoo Finance. In particular, the financial news arm points to customer loyalty, with 73% of Chewy’s total order volume coming from its auto-ship program. Because of the constant flow of goods, over the last year, net sales per customer increased 14% to $462.
“I believe in the speed of innovation and the loyalty and longevity of customer care that a company delivers,” said Chewy CEO Sumit Singh. So far, the company appears to be living up to this ethos. Chewy anticipates that it will report earnings in December.
Another factor that should help undergird CHWY stock is increased pet adoptions, per Yahoo Finance’s Rachelle Akuffo. Indeed, the American Society for the Prevention of Cruelty to Animals (ASPCA) cited research that nearly one in five households adopted a cat or dog since the start of the Covid-19 pandemic.
More importantly, as of last year, a majority of those households still have the aforementioned adopted pets in their home. Therefore, Chewy’s total addressable market (TAM) increased during Covid-19 — a rare dynamic — which may lead to net benefits for CHWY stock.
Challenges Remain for CHWY Stock
While America’s love for its furry friends increased during the global health crisis, investors should maintain caution regarding CHWY stock. Under the present and relatively stable economic framework, the pet market appears likewise reliable. However, that might change should circumstances worsen significantly.
For instance, the aforementioned data mentioned by ASPCA revealed that 90% of dogs and 85% of cats adopted during the Covid-19 crisis still lived under their new owners’ roofs. While that’s encouraging in one respect, in another, economic circumstances — based on employment level data — have improved since the spring doldrums of 2020. Arguably, then, pet adoption retention data should be higher.
In addition, during the Great Recession, pet abandonment represented a major humanitarian dilemma. The circumstance got so bad that the Humane Society and other advocacy groups called out irresponsible pet owners. Unfortunately, as with human relationships, it’s not possible to establish accurate resiliency data without a stress test.
In the immediate future, the framework of pet adoptions and ever-rising demand for the pet industry should bolster CHWY stock. However, prior precedent suggests investors must be cautious about assuming a permanently ascendant trajectory.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.