This is Chewy's biggest opportunity, and investors could win big. Is it time to buy this stock?

Pet E-Commerce Company Chewy (NYSE: CHWY)It's been a rough start to 2024, with the stock down about a third so far this year. One of the biggest reasons behind this is that the company is forecasting modest growth for the pet industry as a whole this year, and doesn't expect to see big gains from higher prices.

However, the company still faces a huge opportunity that investors may overlook. So, is now the time to buy this stock?

Good recurring business model

To understand Chewy, it is first important to realize that it has a largely recurring business model. About 85% of its business comes from non-discretionary items such as pet food and pet health products. Meanwhile, more than 75% of its sales come from autoship program customers.In 2023, the company generated nearly $8.5 billion in sales from autoship customers.

Why is this important? Because it creates a lot of visibility into future sales. Investors like predictable companies, and companies with recurring businesses are among the most predictable. As a result, such stocks tend to be highly valued by investors.

This type of business also creates a large, loyal customer base, which allows Chewy to sell more products, which is a huge opportunity for Chewy.

Drugstore sales are a huge opportunity

Chewy has become the largest online pet pharmacy in the U.S., but only about 20% of its customers use the service. This creates a huge opportunity for Chewy to sell these services to its existing customer base.

Pet medications are a huge market, with sales in the U.S. exceeding $12 billion annually. Although the sale of pet medications has shifted online over the years, pet medications sold through veterinarians still account for 70% of pet pharmacy sales.

As the cost of pet medications and veterinary visits increases over time, it is in the interest of both consumers and Chewy to shift consumers to much cheaper alternatives. Despite being able to offer medications at a much cheaper price than veterinarians, Chewy has been able to get a huge profit boost from pharmacy sales compared to its other businesses. In fact, the company has said that the margins on its pharmacy business can be as much as 1,000 basis points higher than those on its retail business.

Why is this important to investors? Because it means that drugstore sales are not only a huge revenue growth opportunity, but also represent higher sales margins.

Driving growth in health and wellness

To help increase awareness and sales of its health and wellness products, Chewy has also begun establishing its own veterinary clinics. The company plans to test the concept by opening four to eight locations this year.

The company has also collaborated withTrupanion (NASDAQ: TRUP)respond in singingLemonade (NYSE: LMND)The carpet provides pet insurance. The company bears no underwriting risk during the carpet process, and gross margins on sales are close to 100%. Chewy also offers a remote therapy platform that allows pet owners to consult with a veterinarian online. Real-time text chat is free, 20 minutes of online chat is $19.99, and some Careplus plans are free.

In addition, the company operates the PetMD Web site, which is filled with articles written by veterinarians and educational articles. The site reaches approximately 5 million users per month and helps these users access the Chewy website.

Chewy also connects directly with veterinarians to help them prescribe prescriptions through its PracticeHub platform. Veterinarians can check and approve prescriptions through the platform, while Chewy is responsible for inventory, fulfillment, and distribution.

All of these measures in themselves contribute to the growth of Chewy's overall business. But the best thing about all of them is that they help attract customers to Chewy's thriving pet pharmacy business.

Selling creates opportunities

The sell-off in Chewy's stock has resulted in one of the cheapest valuations in the last few years, with a forward P/E of around 20x. The valuation is attractive for a company with a recurring business model that expects revenue growth of 4%-6% in a down year.

Given its attractive valuation and the tremendous long-term opportunities in the pet dispensary and healthcare space, now seems like a great time to buy Chewy stock.

Should you invest $1,000 in Chewy now?

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Geoffrey Seiler does not hold any of the stocks mentioned above.The Motley Fool recommends Chewy, Lemonade and Trupanion.The Motley Fool has a disclosure policy.

This is Chewy's biggest opportunity, and it could bring huge gains for investors. Is it time to buy this stock?