1 Reason to Be Very, Very Excited About Chewy Stock Right Now

Key Points

• There are many reasons to be excited about owning Chewy, the leading online pet goods retailer.

• Many of these reasons point to one thing -- the potential for Chewy's profit margins to keep rising.

• With a reasonable valuation, but poised to see improving profitability, Chewy could quickly outgrow its current price tag.

• 10 stocks we like better than Chewy ›

Despite its stock price already doubling since 2024, leading online pet goods retailer Chewy (NYSE: CHWY) remains one of my favorite stocks to buy right now.

One particular reason stands out to me as to why Chewy stock is worth owning, and that is the potential for its profit margins to keep rising.

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Since the company's focused on an array of higher-margin growth areas, Chewy's profitability could continue improving -- and investors should be very excited about it.

Chewy's burgeoning profit margins

Over the past two years, Chewy has become consistently profitable and cash-generative.

However, despite already recording a 2% net profit margin and a 4% free cash flow (FCF) margin (1.2% if you include stock-based compensation), the company's margins could keep rising as management focuses on the following higher-margin areas.

Autoship

Chewy's Autoship subscription plans account for 83% of total sales. This large base of Autoship sales means that most of Chewy's revenue is predictable, steady, and ripe for further streamlining.

Image source: Getty Images.

Chewy Vet Care

The company plans to have 20 Chewy Vet Care clinics running by year's end. These clinics give the company a physical presence and also offer the higher margins that veterinary shops typically achieve.

Get Real

Chewy recently launched its own private-label healthy and fresh dog food, Get Real. This premium-priced product offers higher margins (particularly as a private label good) and ties in perfectly with Chewy's Autoship subscriptions.

Advertising

Chewy's sponsored ads business remains a major driver of the company's growing profitability. Management believes that these high-margin placements should one day grow to account for between 1% and 3% of total revenue.

Chewy

The company's new $49 annual membership program, Chewy , received a positive reaction following its launch. Chewy provides members with free shipping, 5% rewards on purchases, and exclusive offers. Chewy members already accounted for 3% of the company's June sales, and the program could generate substantial high-margin membership fees annually.

Trading at 29 times forward earnings -- but with these earnings potentially set to rise -- Chewy is a top stock to consider today.

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Josh Kohn-Lindquist has positions in Chewy. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.