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Motley Fool: Autoshipping for the win

Sept. 23, 2022 Updated Fri., Sept. 23, 2022 at 5:25 p.m.

Autoship is a top reason to buy and hold growth stock Chewy for the long haul. Fully 73% of the company’s total order volume is on speed dial.  (Daniel Acker/Bloomberg)
Autoship is a top reason to buy and hold growth stock Chewy for the long haul. Fully 73% of the company’s total order volume is on speed dial. (Daniel Acker/Bloomberg)

Not many e-commerce companies have managed to improve their profit margins in 2022 during this period of increasing expenses, but pet-focused retailer Chewy (Nasdaq: CHWY) has. There’s a lot to like about Chewy.

Active customers in its second quarter increased only 2.1% year over year. But thanks to repeat orders from this base of 20.5 million active customers, total sales grew 12.8%. Sales were bolstered by the predictable stream of revenue coming from its autoship program.

Autoship is a top reason to buy and hold this growth stock for the long haul. Fully 73% of Chewy’s total order volume is on speed dial. This helps management budget for the year ahead.

This reflects Chewy’s relative competitive strength too, as customers don’t seem to be seeking out alternatives to its product selection and prices. Over the last year, net sales per customer increased 14% to $462, and this metric has been steadily inching higher.

Given the company’s opportunities to potentially upsell its loyal customers new services such as pet insurance, which can generate high-margin sales for the company, the stock could be trading well below what it will be worth in another 10 years. (The Motley Fool owns shares of and has recommended Chewy.)

Ask the Fool

Q. What’s in the “Secure Act 2.0” that might be passed by Congress? – G.W., Kankakee, Illinois

A. The House of Representatives passed the bill in March, and the Senate is working on similar legislation. There’s a good chance that some combination of various plans will be passed by Congress this year.

Proposed legislation (as of early September) offers many provisions that can help Americans save for retirement. For example: Employers that offer 401(k) or 403(b) plans would be required to automatically enroll all new, eligible employees, starting with a 3% contribution rate and upping that by 1% annually until it reaches 10%. (Employees can opt out, though.) Workers aged 62 to 64 would be able to make extra $10,000 “catch-up” contributions each year to their 401(k) or 403(b).

Required minimum distributions from many retirement accounts must now be taken starting at age 72, and the Secure Act 2.0 proposes raising that age to 75 by 2032. The act would also make it easier for retirement plans to offer annuities, which can provide lifelong income for retirees.

To learn even more, look up “Secure Act 2.0” online.

Q. If a stock is priced at $0.80 per share but pays out more than $1 per share in dividends, is that a red flag? – P.K., Dallas

A. It sure is. For starters, stocks trading for less than about $5 per share are “penny stocks.” They tend to be very risky and are well worth avoiding.

Dividend-paying stocks, meanwhile, should be generating more in earnings per share than they’re paying out in dividends per share. Fat dividends are great, but the company may not be strong enough to sustain them.

My dumbest investment

My mistake 20 years ago was betting heavily on one stock, and then not getting out when it soared in value. My plan now is to sell when I make a big profit – but not all my shares. I’ll invest the money from selling in something new, while keeping some of my original shares in place. If the stock does go down, I will have at least already made my profit. If I got out too early, at least there will be some left to grow. Maybe I won’t make millions, but thousands will still be appreciated. – B., online

The Fool responds: Your approach is reasonable – a compromise between leaving all your money in an investment or selling all your shares. There are two issues to consider, though: First, what portion will you sell and what portion will you keep? This decision can make a big difference in your end results.

More important, be sure to assess the health and growth prospects of the company before you consider selling the stock, because you might want to hang on to, or at least keep more of, your shares. A company that’s headed to a 1,000% or 2,000% return over 20 years will see its shares rise and fall at different times, sometimes sharply. If you were to exit after a 100% or 200% gain, you could be leaving a lot of money on the table.

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