Meme stocks have been all the rage again this year, with GameStop (NYSE:GME) and AMC Entertainment (NYSE:AMC) shares seeing a flurry of buy orders in mid-May, and now Chewy (NYSE:CHWY) shares are making the move, giving short squeeze traders a new hot stock to pick up in July.
So, for better or worse, the meme stock craze isn’t completely over yet. In the meantime, investors might want to consider whether Chewy stock is worth buying on its own merits.
Add to that the irony of social media regular “Roaring Kitty” acquiring a large stake in a pet supplies retailer, and while we live in strange times, the value proposition of Chewy stock may provide food for thought for enterprising investors.
“Roaring Kitty” new pet project
To quickly recap, “Roaring Kitty” is the X-handle of Keith Gill, the retail trader and meme king who is the unofficial leader of the small group of short-squeeze traders who fueled the sharp but short-lived rally in GameStop, AMC Entertainment and several other stocks in 2021.
After a long silence, Gill reemerged on social media in May. Shares of GameStop and AMC Entertainment surged in May, only to give up much of their gains and leave poorly timed traders holding the sack.
Fast forward to June 27th, when Gill posted a picture of a cartoon dog to X, with no text.
The photo, without context, was apparently enough to spur a surge in Chewy and Petco Health and Wellness (NASDAQ:WOOF) shares, but until recently there was no strong evidence that Gill actually owned a significant amount of stock in either of these pet supply companies.
And on Monday morning, Chewy’s stock price rose 20% to $32.72 during pre-market trading hours. According to a regulatory filing via The Wall Street Journal, Gill disclosed that he owns 6.6% of Chewy’s stock, or 9 million shares. This holding was worth about $290 million when CHWY’s stock price soared before the stock market opened on Monday morning.
Of course, Gill also owns a large amount of GameStop stock, but that’s not the only connection between the two companies: GameStop CEO Ryan Cohen actually founded Chewy.
Perhaps it’s not at all surprising that “Roaring Kitty” chose to own CHWY stock, which skyrocketed to $118.68 at the peak of the meme-stock boom in February 2021. The stock eventually fell to a low of $15.44 on May 10, 2024.
So a long-term investment in Chewy has not been a winning strategy.On Monday morning, a miniature version of the pump-and-dump story arc appeared to be playing out once again, as Chewy shares plummeted to just under $25 after opening at nearly $30.
This is not Pets.com
Chewy in 2024 is unlikely to suffer the same fate as Pets.com in the early 2000s. If you’re older, you might remember watching Pets.com’s stock price soar and crash as the dot-com bubble grew and collapsed.
Pets.com may have been ahead of its time: At the time, consumers weren’t ready to switch from brick-and-mortar pet supply stores to online platforms.
But that was long ago. Chewy is a profitable company, with first-quarter earnings per share of 15 cents, up from 5 cents per share in the same period last year. Additionally, Chewy’s net sales increased 3.1% year over year to $2.88 billion.
Additionally, Chewy CEO Sumit Singh noted that the company delivered “record-breaking” adjusted EBITDA in the first quarter: Chewy reported adjusted EBITDA of $162.9 million, an increase of $52.1 million over the same period last year, which is impressive.
Another positive sign is that Chewy agreed to buy back $500 million worth of stock from its largest shareholder, Buddy Chester Sub LLC.
“We view this development as another key indicator that CHWY’s free cash flow generation is beginning to turn around, enabling new capital returns,” Mizuho Americas analyst David Bellinger said in response to Chewy’s share repurchase agreement.
So Chewy doesn’t appear to be a passing fad like Pets.com was a quarter century ago. Despite the attention from meme stock fans, Chewy stock may actually have a decent value proposition.
Owning a few shares of Chewy stock isn’t the worst idea in the world, as long as you actually believe in the company and are buying into it, and not just because “Roaring Kitty” owns the stock.
