Chewy’s stock reverses early gains after Roaring Kitty’s 6.6% stake is disclosed

01 Jul 2024, 11:33 by James Rogers · MarketWatch

Chewy Inc.’s stock reversed its early gains Monday after it was revealed that influential trader Keith Gill, also known as “Roaring Kitty,” holds a significant position in the online retailer of pet products.

The stock CHWY, -6.61%, which surged 19.9% in premarket trading, ended the session down 6.6%.

Gill’s 6.6% stake — more than 9 million shares as of June 24 — was revealed in an SEC filing.

Last week, Gill posted a cryptic image of a dog on X, sparking speculation that it could be a reference to Chewy. Shares of the pet-products retailer surged Thursday in response to the post but ended that day’s session down 0.3%. The stock closed down 6.2% Friday.

Chewy shares are up 7.7% in 2024, while the S&P 500 index SPX has gained 14.8%.

Ryan Cohen, the chief executive of original meme stock GameStop Corp. GME, -5.51%, is Chewy’s co-founder and former CEO.

CFRA maintained its hold rating for Chewy on Monday, noting 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.

“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. “[Chewy’s] short interest as a percentage of float is about 15%, but short interest as a percentage of shares outstanding is about 5%, as only about one-third of [Chewy’s] 436 [million] shares outstanding are free floating.”

Sundaram wrote that Chewy’s largest shareholder, BC Partners, owns more than 50% of the company’s common shares. Last week, Chewy announced an agreement to repurchase 17.6 million shares from BC Partners for approximately $500 million.

Of 30 analysts surveyed by FactSet, 19 have an overweight or buy rating, nine have a hold rating and two have an overweight or sell rating on Chewy.

Gill’s return to social media in May sent shares of GameStop soaring. The stock surged again after a June 2 Reddit post from an account associated with Gill appeared to show him holding a big stake in the videogame retailer.

The trader, who played a pivotal role in the 2021 meme-stock frenzy, discussed his GameStop position in a closely followed YouTube livestream on June 7, his first in three years. Gill highlighted an “overemphasis” on GameStop’s legacy business during the livestream. “They are in the transformation stage,” he said before praising Cohen, saying: “I believe this guy — he might be able to do it.”

On June 13, Gill, who also posts on social media under the moniker “DeepF—ingValue,” revealed he had grown his GameStop stake in an update shared to his Reddit account. Gill also sold some or all of his call options with a June 21 expiration date, according to the update.

GameStop shares ended Monday’s session down 5.5%.

Barbara Kollmeyer contributed.