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$15 billion market cap Chewy (CHWY) is the leading online retailer of pet supplies. While I’m a big believer in businesses selling to pet owners because I believe that trend is in a secular bull market due to young people substituting pets for kids, for a long time I couldn’t get my mind around CHWY’s valuation. But after reading the fascinating chapter on the Nomad Investment Partnership in William Green’s Richer, Wiser, Happier earlier this year, I had a new framework for thinking about it.

Nomad’s Nick Sleep and Qais Zakaria were one of the first to recognize what Jeff Bezos was up to at Amazon. Like Costco before him, Bezos was at first focused on giving customers tremendous quality and thereby building loyalty to the brand at the expense of profitability. Many value investors – including myself – couldn’t get their heads around AMZN’s valuation in the early days. But we all know how the story ends: After gaining enormous market share and building extreme brand loyalty, Bezos started to focus on profitability. AMZN is now a highly profitable company – of which I am a shareholder – and one of the best stocks of all time. This type of thinking has become known as Value Investing 3.0.

I think I see a similar kind of thing happening with CHWY. Now that they have more than 21 million active customers, they seem to be focusing more on profitability. This can be seen in the continuing expansion of their Adjusted EBITDA Margin: 2025G: 5.65%, 2024: 4.8%, 2023: 3.3%, 2022: 3.0%. As a result, Adjusted EBITDA is poised to more than double this year to $711 million from $307 million in 2022. You can see this progression on page 8 of their 3Q25 Earnings Presentation published this morning. I think I now see the long term vision and how CHWY could dominate the pet space in the years and decades ahead. If so, its stock is actually a bargain despite looking expensive on traditional valuation metrics.

CHWY reported 3Q25 earnings this morning and shares are currently +6% in the opening minutes of today’s session.

Disclosure: Top Gun is long shares of CHWY.

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