How Your Dog Can Make You Money
August 21st, 2020
This week, we closed our fifth successful trade in a row on one of my favorite stocks to trade for income: Chewy (CHWY).
If you own pets, you’re likely familiar with this online retailer of pet food and other supplies.
My cockapoo, Sumo, is quite old and lives to eat and sleep. He gets two cans of fairly expensive food every day, which averages out to around 60 cans a month. Chewy’s auto-ship service makes my life much easier. This convenience, along with Chewy’s low prices and excellent customer service, have made it a hit among pet owners.
What’s more, on a recent trip to the veterinarian, Sumo’s prescription was automatically sent to Chewy to be filled and then sent directly to my home. I assume other vets are doing the same and that this trend will introduce even more pet owners to Chewy.
I’ve been a big fan of Chewy for some time now, noting early in the year that the company was well-positioned to take advantage of an obvious trend: how much Americans love their pets.
In the late 1980s, 56% of U.S. households reported owning a pet, according to a survey conducted by the American Pet Products Association (APPA). That number now stands at 67%, or around 85 million families.
And, as you might have noticed, people seem to love their pets more than ever.
They have practically elevated their pets to the level of their human offspring — feeding them grain-free, organic food, buying them plush bedding and all-natural toys, and dressing them in Halloween costumes. And whether you love or loathe the cultural shift of humanizing pets, no one is abandoning their children — human or the fur variety — when a recession hits.
Given this trend, it’s hardly surprising that research shows pet market sales have been steadily increasing. Americans spent an estimated $75.38 billion on their pets last year, according to research complied by APPA. That’s up nearly 4% from 2018 and more than double spending levels in 2005.
Millennials now represent the largest segment of pet owners, and they don’t seem to be sparing much expense when it comes to their furry friends. A 2018 TD
Ameritrade survey showed that dog owners spend an average of $1,285 a year on their pet, while cat owners spend an average of $915 a year.
And if there’s one thing we know about millennials (and plenty of non-millennials as well) it’s that they love the convenience of online shopping.
Market research publisher Packaged Facts estimates that online sales accounted for 20% of total pet product sales in 2019, with average online spending per shopper totaling $744. The firm predicts the percentage of pet product sales that take place online will steadily increase over the next few years, hitting 23% in 2023 — and that estimate was made prior to the coronavirus pandemic and its resulting lockdowns and business closures…
Chewy was growing active customers and revenue at a double-digit clip even before anyone besides epidemiologists and biology students had heard the term “coronavirus.” I expect the global health crisis to accelerate this growth, as pet ownership and the sale of pet-related products are booming.
In the company’s most recently quarterly report, which was released in June, net sales soared 46% year over year to $1.62 billion. And in a good sign for consumer loyalty, the company said active customers spent $357 on a trailing 12-month basis versus $312 a year ago.
As I mentioned, we’ve closed five profitable trades on the stock so far this year. Options Income Blueprint members who traded just one contract of each could have generated a total of $467 in income.
Here’s a quick snapshot of our Chewy trades:
This online pet retailer was well-positioned for rapid growth before the pandemic, and that growth should only accelerate given the current reality. Options Income Blueprint can expect to continue generating income by selling puts on Chewy for the foreseeable future.