Chewy: A Discounted Growth Story or Overvalued Risk?

Chewy (CHWY) has long been a polarizing stock, trading at valuation multiples that defy traditional retail benchmarks. As of Q2 2025, its EV/EBITDA multiple of 64.7x—with forward multiples soaring to 166x by 2026—suggests investors are pricing in extraordinary growth. Yet, the stock's recent pullback has sparked debate: Is Chewy's current valuation a discount for long-term investors, or a trap for the unwary?

Valuation in Context: Chewy vs. Peers

To assess Chewy's discount, we must first compare it to peers. PetSmart (PETM), a traditional brick-and-mortar rival, trades at an EV/EBITDA of 10.6x, while Walmart (WMT) operates at a trailing P/E of 20x. Even Amazon (AMZN), Chewy's e-commerce titan competitor, carries an overall EV/EBITDA of 21x—a fraction of Chewy's current multiple.

This premium reflects Chewy's unique strengths: its Autoship subscription model, which drives 82% of sales, and its expansion into veterinary care (via its VetIQ clinics). These assets position Chewy as a high-growth disruptor in pet retail, distinct from slower-growth peers.

The Case for a Strategic Entry Point

1. Autoship: The Engine of Predictable Growth
Chewy's subscription model is a goldmine. Autoship's recurring revenue reduces customer churn and creates a flywheel effect: the more customers auto-renew, the stronger Chewy's cash flow. With 82% of sales tied to Autoship, this model is a scalable competitive advantage.

2. Vetcare Expansion: Diversifying Revenue Streams
Chewy's push into veterinary care—expanding its VetIQ clinics to 500 locations by 2026—adds a high-margin, sticky service. This vertical integration reduces reliance on pet food sales and builds deeper customer relationships.

3. Margin Expansion: Proof of Operational Discipline
Despite high multiples, Chewy has delivered. Its adjusted EBITDA rose to $619 million in 2024, up from $420 million in 2022, as it optimized logistics and reduced marketing costs. Analysts project margins to expand further as scale benefits materialize.

Near-Term Risks: Don't Ignore the Elephant in the Room

• Valuation Sensitivity: Chewy's EV/EBITDA is one standard deviation above historical averages, and a slowdown in growth or margin pressures could trigger a reversion.
• Amazon's Shadow: Amazon captures 63% of Chewy's lost customers, leveraging its dominance in pet product searches and pricing.
• Share Dilution: Chewy's recent $500 million institutional share sale—to fund VetIQ expansion—may spook short-term investors, though it funds critical growth initiatives.

The Bottom Line: A Long-Term Bet on Disruption

Chewy's valuation is undeniably aggressive. Yet, its subscription flywheel, vetcare diversification, and operational progress justify a strategic long-term position. For investors willing to overlook near-term volatility, the stock offers a rare opportunity to own a leader in a $150 billion pet industry.

Investment Thesis:
- Buy: For investors with a 3–5 year horizon, Chewy's valuation discount (relative to its growth runway) is compelling.
- Hold: Wait for further margin validation or a pullback to sub-$70/share.
- Avoid: If you prioritize safety over growth, as execution risks remain high.

In sum, Chewy is a test of faith in subscription economics and disruption. The stock's current price is a discount only if its growth narrative holds—no small ask, but one worth backing for patient investors.

Data as of July 2025. Past performance does not guarantee future results.