Chewy Inc. CHWY has shown an impressive run on the bourses, rallying 16% in the past three months, thanks to strong financials, improving consumer demand and operational efficiencies. The stock has comfortably outpaced the industry’s modest rise of 10.8%. However, with shares already up, investors are contemplating whether Chewy still has room to run or if it’s time to take profits.

CHWY Stock Past 3-Month Performance

Image Source: Zacks Investment Research

Chewy stock closed at $37.55 yesterday, sitting 6.3% below its 52-week high of $40.09 reached on Jan. 30, 2025. However, CHWY is trading above its 50 and 200-day moving averages, suggesting a bullish trend. With that in mind, let’s dive into CHWY’s prospects and determine the best course of action for your portfolio.

CHWY Trades Above 50 & 200-Day Moving Averages

Image Source: Zacks Investment Research

Breaking Down the Factors Behind CHWY’s Strong Performance

Chewy has built a strong foothold in the online pet retail industry by focusing on innovation and customer loyalty. With a growing customer base, a steady stream of revenues and an expanding portfolio that includes veterinary and pharmacy services, CHWY is well-positioned for long-term growth. 

The company’s Autoship program remains a key driver of its success, generating $2.3 billion in sales in the third quarter of fiscal 2024, reflecting an 8.7% increase year over year. This underscores its critical role in ensuring predictable, recurring revenues. Moreover, 85% of net sales came from non-discretionary categories like consumables and healthcare products, reinforcing Chewy’s focus on stable demand segments.

Chewy’s active customer base grew sequentially in the third quarter, adding 160,000 customers to reach 20.2 million, indicating strong customer engagement and effective marketing strategies. Chewy expects growth in active customers to continue in 2025. The net sales per active customer (NSPAC) rose 4.2% year over year to reach $567 in the third quarter, marking an increase in wallet share.

The company’s entry into the veterinary services market through Chewy Vet Care has unlocked access to a $25 billion total addressable market. By the third quarter, Chewy was operating six veterinary clinics. These clinics serve as effective entry points for attracting new customers and integrating them into Chewy’s broader ecosystem. The Chewy+ Membership Program has also shown encouraging early results, signaling potential for enhanced customer retention.

Factors That May Derail Chewy’s Momentum

While Chewy's growth trajectory appears promising, several factors — both market-driven and company-specific — could impact the stock’s performance. Slowing growth, potential customer acquisition saturation and rising cost pressures are critical areas that investors should monitor.

Despite the third-quarter adjusted EBITDA margin expanding to 4.8%, Chewy’s fourth-quarter margin guidance signaled a sequential decline to 3.4%. This contraction is attributed to higher seasonal marketing costs and promotional activity during the holiday season. 

Chewy also operates in a highly price-sensitive market, where competitors such as Petco Health and Wellness Company, Inc. WOOF, Central Garden & Pet Company CENT and BARK, Inc. BARK quickly adjust their pricing strategies to attract customers. In addition, underlying inflationary pressures, especially in logistics, labor and raw materials, could squeeze margins. 

The company’s elevated advertising and marketing expenses, which reached $191.8 million or 6.7% of sales in the third quarter, reflect an aggressive push to acquire and retain customers. This may strain profitability if revenue growth does not pick up.

CHWY Trading at Premium

Despite Chewy's strong technical performance, there are concerns from a valuation perspective. CHWY is currently trading at a forward 12-month price-to-earnings (P/E) multiple of 29.98X, which positions it at a premium compared to the industry’s average of 24.74X. This suggests that investors may be paying a high price relative to the company's expected earnings growth. CHWY has a Value Score of D.

Image Source: Zacks Investment Research

Is the Buying Window Closed for CHWY Stock?

Chewy's recent stock rally reflects its solid fundamentals, strong customer engagement and expanding revenue streams. The company’s focus on innovation, subscription-based models and entry into veterinary services underscores its long-term growth potential. However, competitive pressures, rising costs and a premium valuation could limit near-term upside. CHWY currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Central Garden & Pet Company (CENT) : Free Stock Analysis Report

Petco Health and Wellness Company, Inc. (WOOF) : Free Stock Analysis Report

Chewy (CHWY) : Free Stock Analysis Report

BARK Inc. (BARK) : Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research