Roaring Kitty terminates its stake in Chewy, but meme stocks are alive and well

NEW YORK (AP) — A key player in the meme stock craze that began during the pandemic continues to have a powerful influence on stock movements of major U.S. companies.

About four months later uncover a large stake At online pet products retailer Chewy, Keith Gill, also known as Roaring Kitty, has terminated all of his holdings in the company.

Shares fell overnight and traded down 1% on Wednesday.

Filings filed with the U.S. Securities and Exchange Commission in July revealed that Gill bought 6.6% of the company’s shares after offering investment tips using pictures of dogs on social media platform X.

Gill became widely known in 2021 as he rallied retail investors around GameStop. At the time, the video game retailer was struggling to survive, and major Wall Street hedge funds and major investors were betting against it or short-selling its shares. But Gill and those like him turned the tide on GameStop by buying thousands of shares despite nearly every accepted benchmark telling investors the company was in serious trouble.

GameStop and Chewy have something in common when it comes to Ryan Cohen. He founded Chewy in 2011 and stepped down as CEO in 2018. Gill saw in Cohen the potential to save GameStop, where he was CEO.

Other meme stocks have emerged since then; one of the best known Trump Media and Technology Group Corp.

Trump Media this week surpassed the market value of Elon Musk’s social media platform X; This is due to both the collapse of the company’s value under Musk management and highly volatile trading Trump Media uses the ticker symbol “DJT”.

Meme stocks were a novelty during the pandemic, but today, like it or not, they have become a reality, rising and falling on little else than momentum and investors’ enthusiasm. Trump Media’s shares have more than doubled in 2024, but the company’s losses are growing exponentially every year and its debt continues to rise.

Why are Chewy shares under pressure?

In a filing to U.S. regulators late Tuesday, Gill disclosed that he had liquidated his entire stake in Chewy, more than 9 million shares at one point, making him the company’s third-largest shareholder.

As with other Gill investments, it offered potential clues about X. In early September, she posted a picture of a boy dropping a toy with a dog face on its head from the “Toy Story” movie franchise. Chewy uses dogs in much of its marketing materials.

Gill hasn’t posted anything to the account since then.

How is Chewy company doing?

Chewy beat Wall Street’s earnings expectations in its latest quarter, with revenue rising 2.6%. Shares are up almost 13% this year; That’s better than the Dow Jones Industrial Average but well below the S&P 500’s year-to-date advances.

Industry analysts are raising their estimates for Chewy’s profits, and most expect sales growth to accelerate next year.

How has the landscape for meme stocks changed?

More shares of meme-stock companies are trading on the market than in 2021, which could reduce the chances of what’s called a “short squeeze.”

A short squeeze is a relatively rare event that can produce eye-popping profits for people riding the wave. When investors bet that the price of a stock will fall in the future, they open a “short position” in the stock by borrowing and selling shares. Then, if the price really falls, short sellers He can buy the stock, return the borrowed shares and pocket the difference.

In March, GameStop had approximately 305.9 million shares traded on the market; This was more than four times the number of shares in March 2021. This means it’s harder to move stocks like GameStop on momentum alone.

Such a short squeeze likely contributed to GameStop’s exciting rally in 2021, but SEC staff said it was a small fraction of the overall buying and GameStop shares remained high even after short sellers exited their trades.

What are the risks of participating?

If you want to take a chance on meme stocks like Trump Media, you’ll have to take action and hope others share your excitement.

Shares rose 4% on Monday, 8% on Tuesday, and then fell more than 20% on Wednesday.

Shares are still positive this week, and if that continues, this gain will turn into a six-week winning streak. However, during the seven-week period from late July to early September, the stock fell every week.

However, Trump Media’s shares are up 130% this year and appear to rise and fall with the ups and downs of the former president’s campaign, but few industry analysts see a reason to risk investing based on economic fundamentals. .