Chewy bets on auto-delivery to win
The Motley Fool’s Take
Few e-commerce companies have managed to improve their profit margins in 2022 during this period of rising spending, but pet-focused retailer Chewy has. There’s a lot to love about Chewy.
Active customers in the second quarter grew only 2.1% year over year. But thanks to repeat orders from this base of 20.5 million active customers, total sales increased by 12.8%. Sales were supported by the predictable stream of revenue from its auto-ship program.
Autoship is one of the main reasons to buy and hold this long-term growth stock. 73% of Chewy’s total order volume is speed dial. This helps with budget management for the coming year.
It also reflects Chewy’s relative competitive strength, as customers don’t seem to seek alternatives to its product selection and pricing. Over the past year, net sales per customer have increased 14% to $462, and this metric has continued to rise.
Given the company’s opportunities to potentially upsell its loyal customers new services such as pet insurance, which can drive high-margin sales for the company, the stock could trade well below. what it will be worth in 10 years. (The Motley Fool owns shares of and recommended Chewy.)
ask the fool
From GW to Kankakee, IL: What’s in the “Secure Act 2.0” that could be passed by Congress?
The madman responds: The House passed the bill in March, and the Senate is working on similar legislation. There is a good chance that a combination of various plans will be passed by Congress this year.
The proposed legislation (early September) offers many provisions that can help Americans save for retirement. For example: Employers offering 401(k) or 403(b) plans would be required to automatically enroll all eligible new employees, starting with a 3% contribution rate and increasing it by 1% per year until it reaches 10%. (However, employees can opt out.) Workers between the ages of 62 and 64 could make an additional $10,000 annually in “catch-up” contributions to their 401(k) or 403(b)s.
The required minimum distributions from many retirement accounts must now be taken from age 72, and the Secure Act 2.0 proposes to raise that age to 75 by 2032. The law would also make it easier for pension plans to offer annuities, which can provide lifetime income for retirees.
From PK to Dallas: If a stock is priced at 80 cents per share but pays more than $1 per share in dividends, is that a red flag?
The madman responds: Absolutely. For starters, stocks that trade for less than about $5 per share are penny stocks. They tend to be very risky and worth avoiding.
Dividend-paying stocks, on the other hand, should generate more earnings per share than they earn in dividends per share. Big dividends are important, but the company may not be strong enough to sustain them.
school of fools
Between 1928 and 2021, the S&P 500 index has averaged annual growth of 10.1% (dividends reinvested), while US Treasuries have averaged 4.9%. It’s hard to beat the stock market for building wealth over long periods of time, but over short periods stocks can lose value. You may also want to invest in certain bonds for diversification purposes, especially near retirement, or for short-term income. Make sure you understand what bonds are and how they work in the first place.
Think of bonds as loans, and often for the long term. When you buy a bond from a company or government, they borrow that money from you and promise to pay you a certain rate of interest. Bonds sold by the US government’s Treasury Department are called treasury bills and have minimal risk. State and local governments issue municipal bonds, while corporations issue corporate bonds. Companies with a relatively high risk of default attract buyers with “junk” bonds with high interest rates.
If you buy a $1,000 bond with an interest rate (or “coupon”) of 3%, you will receive $30 per year in interest payments. When the bond “matures,” you will be repaid your principal (the loan you originally made — the “face value” of the bond). Most corporate bonds have a face value of $1,000, while government bond face values can be much higher.
Bonds can reduce the overall volatility of a portfolio. They can provide a reliable stream of income, via interest rates that can (but cannot) outpace inflation, and if you hold your bonds to maturity, the risk of losing your money can be low. However, if you sell your bond before maturity, its value may be lower if interest rates have risen, making your lower bond rate less attractive. Many investors don’t hold onto their bonds for years to maturity, and bonds are often traded between investors, their prices rising and falling in response to prevailing interest rates.
Model portfolios including bond funds can be found in our “Rule Your Retirement” service at Fool.com/services.
My dumbest investment
From B., online: My mistake 20 years ago was betting heavily on a stock and not getting out when its value skyrocketed. My plan now is to sell when I make a big profit, but not all of my stocks. I will invest the money from the sale in something new while keeping some of my original stock. If the title goes down, I will have at least already made my profit. If I left too early, at least there will be some left to grow. Maybe I won’t make millions, but thousands will still be appreciated.
The madman responds: Your approach is reasonable – a compromise between leaving all your money in one investment or selling all your shares. However, there are two questions to consider: first, which part will you sell and which part will you keep? This decision can make a big difference in your end results.
Most importantly, be sure to assess the health and growth prospects of the company before you consider selling the shares, as you may want to hold on, or at least hold on to more of your shares. A company heading for a 1000% or 2000% return over 20 years will see its shares go up and down at different times, sometimes sharply. If you were to exit after a 100% or 200% win, you could be leaving a lot of money on the table.
Who am I?
In 1995, I started as an affiliate of American Radio. I was established as a separate company in 1998 and have continued to grow, primarily through acquisitions. Through a 2005 merger with SpectraSite, I became America’s largest tower company. Today, based in Boston and operating as a real estate investment trust, I am a leading independent owner, operator and developer of multi-tenant communications real estate; my portfolio has about 222,000 communication sites, including more than 175,000 outside the United States. I also supply dozens of data center installations in the United States. My market value recently exceeded $120 billion. Who am I?
Don’t remember the trivial question from last week? Find it here.
Answer to last week’s quiz: Knowledge base home