Meme stocks are back in fashion this year, with GameStop (NYSE:GME) stock and AMC Entertainment (NYSE:AMC) stock catching bids in mid-May. Now Chewy (NYSE:CHWY) stock is on the move, and it looks like short-squeeze traders have a new shiny object to focus on in July.
Thus, for better or for worse, the meme-stock trend hasn’t fully run its course yet. Meanwhile, investors might want to consider whether Chewy stock is worth buying on its own merits.
On top of all that, there’s the irony of a social-media denizen called “Roaring Kitty” taking a large position in a pet-supplies provider. These are strange times we live in, but maybe the value proposition of Chewy stock can give enterprising investors something to chew on.
“Roaring Kitty’s” new pet project
Just to recap, “Roaring Kitty” is the X handle of retail trader and meme lord Keith Gill. He’s the unofficial leader of a small army of short-squeeze traders who spurred sharp but short-lived rallies in GameStop, AMC Entertainment and a handful of other stocks in 2021.
Gill resurfaced on social media in May after a prolonged hiatus. GameStop and AMC Entertainment stocks got a quick bump in May before coughing up most of those gains and leaving ill-timed traders holding the proverbial bag.
Fast-forward to June 27, when Gill posted on X a picture of a cartoon dog with no accompanying text:
Even a picture with no context was evidently enough to prompt a quick rally in Chewy stock and Petco Health and Wellness (NASDAQ:WOOF) stock. However, until recently, there was no strong evidence that Gill actually owned a large share position in either of these pet-supply companies.
Then on Monday morning, Chewy stock zoomed 20% to $32.72 in the premarket-trading hours. According to a regulatory filing (via The Wall Street Journal), Gill disclosed a 6.6% stake in Chewy equating to 9 million shares. This share position was worth approximately $290 million when CHWY stock rallied on Monday morning before the stock market opened.
Gill also holds a large position in GameStop stock, of course. Yet, that’s not the only connection between the two companies. As it turns out, GameStop CEO Ryan Cohen founded Chewy.
Perhaps it shouldn’t be a complete surprise that “Roaring Kitty” would choose to own CHWY stock, which soared to $118.68 in February 2021, during the peak of the original meme-stock boom. The stock ended up falling to a low of $15.44 on May 10, 2024.
Thus, investing in Chewy for the long term wasn’t a successful strategy. A miniature version of the pump-and-dump story arc seemed to play out again on Monday morning, as Chewy stock opened at nearly $30 but then plunged to $25 and change.
This isn’t Pets.com
For what it’s worth, Chewy in 2024 isn’t likely to suffer the same fate as Pets.com did in the early 2000s. If you’re old enough, you may recall Pets.com stock surging and collapsing with the expansion and bursting of the dotcom bubble.
Pets.com may just have been too far ahead of its time. Back then, consumers weren’t ready to switch from physical pet-supply stores to an online platform.
However, that was then, and this is now. Chewy is a profitable enterprise, having earned 15 cents per share in its first fiscal quarter, up from 5 cents per share in the year-earlier quarter. Furthermore, Chewy’s net sales grew 3.1% year over year to $2.88 billion.
In addition, Chewy CEO Sumit Singh noted that the company delivered “record-breaking” adjusted EBITDA during the first quarter. The numbers are impressive, as Chewy reported adjusted EBITDA of $162.9 million, representing an increase of $52.1 million over the figure from the year-earlier quarter.
It’s also a good sign that Chewy agreed to repurchase $500 million worth of its shares from its largest shareholder, Buddy Chester Sub LLC.
“We view this development as another key indicator that free cash flow generation is beginning to inflect for CHWY and allowing for newfound capital returns,” Mizuho Americas analyst David Bellinger responded to Chewy’s share-repurchase agreement.
Thus, Chewy doesn’t appear to be a flash in the pan like Pets.com was a quarter-century ago. There might actually be a decent value proposition with Chewy stock despite the attention of the meme-stock crowd.
Owning a few Chewy shares isn’t the worst idea in the world, as long as you’re buying because you actually believe in the company and not just because “Roaring Kitty” has a position.
