According to Statista, the global pet food market is forecast to touch US$186 billion in 2028, up from just US$89 billion in 2018, making companies such as Chewy (NYSE:CHWY) and Pet Valu (TSX:PET) enticing investment options right now.
Valued at a market cap of US$7.86 billion, Chewy stock is down almost 80% from all-time highs. Comparatively, Pet Valu stock is a much smaller company, valued at US$1.7 billion by market cap, and its shares are down just 8% from record highs.
Let’s see which of the two pet retailers is a good buy for long-term investors.
The bull case for Chewy stock
Chewy is an online pet retailer that has increased sales from US$4.84 billion in fiscal 2020 to US$10 billion in fiscal 2023 (ended in January). In addition to pet food, it also sells toys, insurance, and medicines to pet owners.
A key revenue driver for Chewy is Autoship, a subscription-based reordering product that allows it to generate recurring sales. Autoship now accounts for 75% of the company’s net sales, which indicates high customer loyalty. In addition to customer retention, Chewy also benefits from higher customer spending. In the fiscal second quarter (Q2) of 2024, net sales per active customer were up 14% year over year.
Chewy also reported its first year of annual profits in fiscal 2023. It now aims to expand in Canada, which will be the company’s first international market. Analysts expect Chewy to increase sales by 11.4% to US$11.25 billion in fiscal 2024 and by 9.8% to US$12.36 billion in fiscal 2025.
Comparatively, its adjusted earnings are forecast to touch US$0.16 per share, indicating a price-to-2025 earnings multiple of more than 100 times, which is quite steep. Chewy stock currently trades at a discount of 100% to consensus price target estimates.
Is Pet Valu stock a good buy today?
Pet Valu is the largest pet retailer in Canada. It opened seven new stores in Q2, taking the total network of retail stores to 758. In the June quarter, Pet Valu reported system-wide sales of $344 million, an increase of 10% year over year. Its same-store sales were up 6% due to higher traffic and an increase in consumer spending.
While sales stood at $256.4 million, its adjusted earnings before interest, tax, depreciation, and amortization were $53.8 million, accounting for 21% of revenue.
Richard Maltsbarger, president and chief executive officer of Pet Valu, stated, “Our double-digit growth in consumables, such as pet food and cat litter, makes it clear our expert level customer service, curated offering of premium products and strengthening omni-channel shopping capabilities continue to resonate with devoted pet lovers across Canada.”
Pet Valu is forecast to end 2023 with revenue of $1.07 billion, an increase of 12% year over year. Comparatively, its earnings are forecast at $1.6 per share, indicating a price-to-earnings multiple of 15.2 times.
Pet Valu also pays shareholders a quarterly dividend of $0.1 per share, indicating a forward yield of 1.6%. But its dividends have grown by 60% in the last year.
The Foolish takeaway
Both Chewy and Pet Valu can be considered defensive buys, as pet owners are unlikely to lower spending during economic downturns. While both companies are well positioned to outpace the broader markets, Pet Valu is a better buy due to its lower valuation and dividend-growth profile.
