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Chewy Inc(CHWY-N)
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These 2 Bargain Stocks Are No-Brainer Buys Right Now

Motley Fool - Tue Nov 7, 2023

In tough market times, it's sometimes hard to get excited about investing -- especially when you're looking at stocks that have posted double-digit declines. That's why, to avoid missing opportunities, it's crucial to look beyond recent share performance and consider the full picture. What are this company's future prospects? Is the long-term story bright?

If those questions lead to positive answers, and the particular company could excel over time, its shares could also power your portfolio over time. Even better, while this stock is in the doldrums, you can grab it for a very reasonable price. I consider this sort of player a "no-brainer" buy. Here are two you'll want to get in on right now.

An artisan making jewelry at a desk in a workshop.

Image source: Getty Images.

1. Etsy

Rising inflation has weighed on people's wallets, spurring them to prioritize essentials and hold off on buying discretionary items. This has hurt Etsy(NASDAQ: ETSY) in recent times. Etsy is an online marketplace offering makers of handmade items a place to set up shop and sell their wares.

Though the current economic environment is holding Etsy's growth back, it isn't likely to keep the company down for long. Etsy still managed to report a profit in the third quarter, increase active buyers to a record high, and maintain cash levels of more than $1 billion.

Once economic pressures lift, it's easy to imagine a strong rebound in Etsy's earnings and share price. Growth in active buyers and buyer retention remain key, as these elements should spur revenue growth. And here, trends are positive. Active buyers reached 92 million in the quarter. The company's buyer retention rate remains above its post-pandemic levels and has increased from last year's level.

Here's something else I love about Etsy: Its capital-light business model. Etsy doesn't have to make huge investments to store and transport goods, for example. This means the company can transform more than 90% of its adjusted EBITDA into free cash flow.

Today, Etsy shares are down more than 47% year to date, leaving them trading at about 13 times forward earnings estimates. That's an absolute steal considering Etsy's ability to navigate these difficult times and the company's future prospects.

2. Chewy

Chewy(NYSE: CHWY) is another company that's winning when it comes to keeping customers loyal. The e-commerce player sells everything you need to keep your pet happy (from food to toys) and healthy (from medication to health insurance).

Though today's economic environment represents a headwind, Chewy has still managed to report double-digit increases in net sales and in net sales per active customer. So, customers are spending more and more on Chewy. Some of this may be due to the fact that Chewy makes it easy for customers to keep coming back. Through its Autoship service, your favorite products automatically reorder and ship to your door -- saving you a lot of time.

Autoship sales account for more than 75% of overall sales, showing repeat customers truly are driving Chewy's growth. This is great because it offers us some visibility on future sales.

Last year, Chewy reached an important milestone, achieving profitability. Now, Chewy has reached a key turning point. The company recently expanded into its first international market, Canada. Chewy sees Canada as having market share and earnings potential equivalent to that of the U.S. market, so this could be big for the company moving forward.

Today, you can pick up shares of Chewy -- following a more than 40% decline this year -- for 36 times forward earnings estimates. That's down from more than 120 earlier this year. So right now, in the early days of its growth story, Chewy is a no-brainer buy that could drive growth in your portfolio over the long haul.

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Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy and Etsy. The Motley Fool has a disclosure policy.

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