Key Highlights
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Chewy has increased its revenue and net profit margins while providing over 130,000 pet products.
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While its move into high-margin categories is a positive step, the overall pet industry is characterized by low margins.
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Its high valuation and limited potential for expanding net profit margins suggest it may be wise to tread carefully.
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Chewy (NYSE: CHWY) is utilizing e-commerce to boost sales of more than 130,000 pet products, but this has not yielded sufficient returns for long-term investors. The stock has decreased by over 70% in the last five years, which raises concerns.
Despite a stock chart highlighting rapid value decline, Chewy has shown improvement internally. Revenue grew year over year in Q3 2025, with profits increasing at an even faster pace. While this is promising, there are several factors to consider before purchasing Chewy stock.
Is Chewy’s Growth Sufficient?
Chewy achieved an 8.3% year-over-year revenue growth in Q3, a rate it has sustained for two consecutive quarters; however, this growth rate has been slowing over the last three years. Chewy appears to have limited pathways for faster top-line growth.
With net profit margins around 2%, Chewy’s structure does not reflect that of high-growth tech companies which often see margins of 10% to 20%. For fiscal 2023 and 2024, net profit margins were recorded at 0.4% and 3.3%, respectively, while the third-quarter 2025 margin stood at 1.9%. A gross margin below 30% further complicates the potential for achieving higher net profit margins.
Focusing on Profit Margins
Chewy aims to enhance profit margins by targeting high-margin sectors such as health and wellness. The recent acquisition of SmartEquine is part of this strategy, allowing Chewy to enter the lucrative equine health market. This move could help introduce subscription-based supplement programs and personalized nutrition plans for equine products.
SmartEquine’s integration aligns with Chewy’s commitment to recurring revenue and extended customer lifetime values, potentially stabilizing some revenue. However, expectations for significant profit margins should be tempered, given the generally low margins within the pet industry.
While Chewy’s venture into veterinary care could enhance margins, other competitors like Petco also operate in this space and report low margins. Though Chewy’s e-commerce model has carved out a niche, it may not justify the high valuation typically assigned to e-commerce stocks. With a P/E ratio of 67, this valuation seems expensive in light of current growth rates.
Should You Consider Investing in Chewy?
Before deciding to invest in Chewy, keep the following in mind:
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Marc Guberti does not hold any positions in the stocks discussed. The Motley Fool recommends Chewy, Freshpet, and Trupanion, maintaining its disclosure policy.
The views expressed here are the author’s own and do not necessarily align with Nasdaq, Inc.
