Why Chewy Stock Is Soaring This Week

Key Points

• Chewy's shares have rebounded following last week's sell-off after earnings.

• While its guidance was conservative, the company looks stronger than ever operationally.

• Chewy's long-term potential far outweighs the 90 days' worth of slightly negative data it presented last week.

• 10 stocks we like better than Chewy ›

Shares of leading pet goods e-commerce juggernaut Chewy (NYSE: CHWY) are up 11% this week as of 1 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence.

Chewy reported earnings last Wednesday, Sept. 10, and immediately saw its shares drop after it offered up guidance that traders deemed was too conservative.

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At that time, I argued that the sell-off seemed to be an overreaction and that the company's underlying business looked stronger than ever. One week later, Chewy's stock has bounced back on minimal news, so perhaps long-term investors have turned the tide against short-term traders selling due to 90 days' worth of information.

Chewy: Building the strongest pet care ecosystem

The primary reason that I am confident in Chewy's stock to succeed over the coming decades is the potential for its profit margins to rise. However, Chewy also offers numerous qualitative factors that make it an outstanding stock to consider, alongside its improving financials.

First off, Chewy ranked as the 29th top brand among millennials, according to Comparably. Landing at the No. 1 spot on Forrester's Customer Experience Index, Chewy and its willingness to go above and beyond for its customers and their furry friends shine through.

This customer satisfaction creates an immensely loyal base of patrons to build an ecosystem around.

Home to the Chewy+ membership program, 12 Chewy Vet Care clinics, a heavily used autoship offering, the most pet pharmaceutical sales in the U.S., and a growing list of private label products, the company has quickly become a one-stop shop for pets.

Trading at 30 times forward earnings, Chewy's rising margins, budding ecosystem, and 10% annualized growth rate over the last three years look attractively valued.

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