With pet spending on the rise, is it time to buy Chewy stock?

For the second time this year, investors praised the strong quarterly results of Tough (CHWY 1.07%)which drove up the share price of the online pet products retailer.

Elsewhere, the stock gained additional attention when it was revealed that Keith Gill, aka Roaring Kitty on Reddit's Wallstreetbets message boards, had made an investment. Gill helped fuel the meme stock hype several years ago.

Let's take a closer look at Chewy's recent results and see if the surge in investor enthusiasm this year is justified.

Pet owners spend more on their pets

In the second fiscal quarter ended in July, Chewy increased its revenue 3% year over year to $2.86 billion. Autoship sales rose nearly 6% to $2.24 billion, accounting for 78% of total revenue.

Net revenue per active customer (NSPAC) increased over 6% year over year to $565. This was the second consecutive quarter of strong NSPAC growth, showing that pet owners are now spending more on their pets. The company also saw a 15% increase in mobile orders after revamping its app.

Gross margin improved 120 basis points to 29.5%. At the same time, the company said it was able to leverage selling, general and administrative expenses (SG&A) as 40% of its order volume now benefits from automation.

The improvement in gross margin led to strong increases in profitability metrics, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) increasing 64% year over year to $144.8 million. Adjusted earnings per share (EPS) increasing 60% to $0.24. Chewy generated free cash flow of $91 million in the quarter. The company ended the period with $695 million in cash and marketable securities and no debt.

During the quarter, the company repurchased $500 million worth of shares from its largest shareholder, BC Partners.

The company opened two veterinary clinics during the quarter, bringing the total to six. The clinics are a strong channel for customer acquisition and lead to more pharmacy-related sales, it said.

Looking ahead, management forecast an acceleration in revenue growth. For the third quarter, it forecast revenue between $2.84 billion and $2.86 billion, representing growth of 3 percent to 4 percent. It maintained its full-year guidance for revenue to increase 4 percent to 6 percent, or $11.6 billion to $11.8 billion. This suggests that management expects revenue to continue to accelerate in the fourth quarter, although this will be helped by an extra week in that period.

Chewy also raised its full-year adjusted EBITDA margin forecast to 4.5% to 4.7%, up from a previous forecast of 4.1% to 4.3% and an original outlook of 3.8%.

Is now a good time to buy Chewy stock?

Chewy stock is currently trading at a price-to-earnings ratio (P/E) of around 26 based on analyst estimates for next year, which at first glance does not seem particularly cheap for an e-commerce company that is expected to see sales growth of between 4 and 6 percent this year.

However, there are a few things to consider. First, much of the company's revenue comes from autoship customers and is very recurring in nature. These types of businesses that cater to basic needs trade at premium valuations due to their robustness, and Chewy's valuation is in line with retailers like Walmart And Tractor accessories.

CHWY PE Ratio (Forward 1 Year) data by YCharts.

Unlike these retailers, however, Chewy is experiencing an inflection point in its earnings growth, with profitability metrics growing exponentially faster than sales.

Third, revenue growth is expected to accelerate going forward. There are clear signs that people are spending more on their pets, as reflected in the strong growth in revenue per active customer recorded in each of the first two quarters of this year. The full-year guidance suggests that very solid revenue growth is expected for the remainder of the year.

In the long term, the company has a great opportunity to engage its 20 million customers through cross-selling to its pet pharmacy business. This is a higher margin business and growth in this area would further improve gross margins and profitability.

With that in mind, I think investors can still look for Chewy stock for the long term.