Roaring Kitty cements Chewy's meme-stock status, despite company's improving fundamentals

By James Rogers

Keith Gill, aka Roaring Kitty, has taken a 6.6% stake in Chewy - thrusting the online pet-products retailer into the meme-stock spotlight

With his 6.6% stake in Chewy Inc., influential trader Keith Gill - also known as Roaring Kitty - sent shares of the online pet-products retailer briefly soaring earlier this week, adding to its meme-stock status.

The stock surged Monday before paring back its gains to end the session down 6.6%. Chewy (CHWY) shares ended Tuesday's session down 2.2%.

Gill's 6.6% stake - more than 9 million shares as of June 24 - was revealed in a filing with the Securities and Exchange Commission.

Related: Chewy's stock reverses early gains after Roaring Kitty's 6.6% stake is disclosed

In a note released Tuesday, Mizuho Securities analyst David Bellinger noted that trading in Chewy shares has been extremely volatile in recent weeks, citing "various chatter through online threads and social-media platforms."

Gill's stake in the company means that investors are increasingly likely to group Chewy in with other meme stocks, including those of GameStop Corp. (GME) and AMC Entertainment Holdings Inc. (AMC), Bellinger said. These stocks "mostly all have seen outsized moves upwards and back down again," he added.

"[Chewy] shares are now trading at the upper end of recent valuation parameters (>20x EV/EBITDA), despite evidence of a clear turn in underlying fundamental trends and a return to sustainable active customer growth," Bellinger wrote in the note. Mizuho Securities maintained its neutral rating for Chewy.

In its fourth-quarter results earlier this year, Chewy reported a profit. The retailer again topped analysts' top- and bottom-line estimates in its first-quarter results in May, sending the stock soaring. Chewy also pointed to signs that pet adoptions are up again.

Chewy shares are up 5.3% in 2024, contrasting with the S&P 500 index's SPX gain of 15.5%. Short interest as a percentage of Chewy's public float of shares is 14.9%.

Gill posted a cryptic image of a dog on X last week, sparking speculation that it could be a reference to Chewy.

While the retailer's shares initially spiked higher Monday on news of Gill's stake, short interest on the three "pet stocks" - Chewy, Petco Health & Wellness Co. (WOOF) and PetMed Express Inc. (PETS) - started to rise last week as shorts "sold into the price pop" generated by Roaring Kitty's post, S3 Partners wrote in a note Tuesday.

In a note released Monday, CFRA maintained its hold rating for Chewy, explaining that the shares are experiencing volatility. "Investors should brace for a period of extended volatility, even if meme-stock trades don't have the same momentum as the GameStop saga back in 2021," CFRA analyst Arun Sundaram wrote.

Related: Chewy's stock is having its best day ever amid signs pet adoptions are up again

"There are a few similarities between [GameStop] and [Chewy], including ties to Ryan Cohen and high short interest. However, a stark difference between the two companies is the fundamental tailwind behind [Chewy]," Sundaram added, noting that the company recently hit an inflection point in terms of profits and free cash flow.

Ryan Cohen, the chief executive of original meme stock GameStop, is Chewy's co-founder and former CEO.

Gill's return to social media in May sent shares of GameStop soaring. The trader played a pivotal role in the 2021 meme-stock frenzy around shares of GameStop and AMC.

Related: Chewy says pet business is 'recession resilient,' but offers this warning

GameStop shares ended Tuesday's session up 2.8%, while AMC shares ended the session up 3.4%.

Claudia Assis and Tomi Kilgore contributed.

-James Rogers

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07-02-24 1823ET

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