It's informative to check how much you would've earned on a stock investment over a period of time. Then, you can analyze the company's future prospects and compare them to the past return. Once they take this step, investors can use this information to try to determine whether a stock can match or exceed this return.
Chewy (NYSE: CHWY) conducted its initial public offering (IPO) in June 2019. Looking back five years, starting with its early days as a public company, how much money would you have if you'd invested $1,000 in October 2019?
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Calculating the value
Chewy sells pet products, supplies, and prescriptions online. Its stock soared in 2020 and the early days of 2021 as pet adoption jumped due to the pandemic, when many people were stuck at home. That's because Chewy offered a convenient way for new pet owners to access what they needed. The shares gained 210% in 2020, and they were up more than 300% at one point.
However, the stock price subsequently dropped precipitously. Over the past five years, you'd have about a 16% gain.Multiplying your initial investment by that amount equates to your initial $1,000 investment now being worth about $1,160. During this time, an investment in the S&P 500 returned approximately 113%. That same $1,000 would've turned into over $2,130.
Unless you were fortunate enough to sell during the stock's high-flying days, you'd have been better off investing in an S&P 500 index fund.
What about Chewy's future prospects? Sales growth has slowed, but it has increased profitability. In the fiscal second quarter, which ended on July 28, sales increased a tepid 2.6%. However, gross margin expanded 1.2 percentage points to 29.5%. While its active customers dropped slightly from a year ago to 20 million, they spent more.
The shares seem unlikely to rise as quickly as they did a few years ago. But investors may want to take a flyer on Chewy, given its focus on the bottom line.
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Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.
