Why Chewy Stock Was Gaining Today

Shares of Chewy (NYSE: CHWY), the leading online pet products seller, were gaining today after the company effectively got a vote of confidence from S&P Global, as it said after hours on Friday that Chewy would join the S&P MidCap 400.

As a result, Chewy stock was up 8.3% as of 12:15 p.m. ET.

Image source: Getty Images.

Chewy earns a stamp of approval

S&P Global, which manages indexes including the S&P MidCap 400, said that Chewy would replace Stericycle on the mid-cap index, as Stericycle is being acquired by Waste Management.

Chewy will be added to the S&P MidCap 400 before market open on Wednesday. S&P Global didn't explain the move, but being included in the index means that Chewy will be added to ETFs tracking the S&P MidCap 400, which should boost the stock as those index funds buy it and add it to their holdings.

The move also signifies S&P Global's confidence in the company, as the index manager tends to consider factors like financial viability when adding companies to its indexes.

Can Chewy keep climbing?

Inclusion in the mid-cap index also brings Chewy a step closer to joining the S&P 500 (SNPINDEX: ^GSPC), though the company would have to grow significantly before joining the large-cap index.

Chewy's once-strong growth has slowed in recent quarters. Revenue rose just 2.6% in the second quarter to $2.86 billion, though its profits soared as it controlled costs, and gross margin rose 120 basis points due to changes in the sales mix.

The pet products industry seems to be rebounding after a long post-pandemic slump. There's certainly upside potential for Chewy, but its revenue growth will have to improve.

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Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy and S&P Global. The Motley Fool recommends Waste Management. The Motley Fool has a disclosure policy.