Roaring Kitty Dissolved Its Chewy Holdings, But Meme Stock Is 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 the movements of shares of the largest U.S. corporations.

Almost four months later revealing a huge bet Online pet supplies retailer Chewy, Keith Gill, aka Roaring Kitty, has dissolved all of his holdings in the company.

The stock fell sharply overnight and was trading 1% lower on Wednesday.

Documents filed with the U.S. Securities and Exchange Commission in July showed Gill acquired a 6.6% stake in the company after hinting at an investment using pictures of dogs on social media platform X.

Gill became a household name in 2021 when he rallied retail investors. GameStop. At the time, the video game retailer was struggling to survive, with major Wall Street hedge funds and big investors betting against it or shorting its shares. But Gill and those who agreed with him changed GameStop’s trajectory, buying thousands of shares even though nearly every accepted indicator told investors the company was in serious trouble.

GameStop and Chewy are united by Ryan Cohen. He founded Chewy in 2011 and stepped down as CEO in 2018. Gill saw the potential in Cohen to save GameStop, where he is CEO.

Since then, other meme stocks have emerged, one of the most famous of which is Trump Media & Technology Group Corp.

Trump Media surpassed the market value of Elon Musk’s social network X this week, both because the company’s value has collapsed under Musk and because extremely volatile trading at Trump Media, which uses the ticker “DJT”.

Meme stocks were a novelty during the pandemic, but today, like it or not, they are a reality, rising and falling only on the strength of momentum and investor enthusiasm. Trump Media shares have more than doubled in 2024, even as the company’s losses grow exponentially each year and its debt continues to rise.

Why is Chewy stock under pressure?

In a filing late Tuesday with U.S. regulators, Gill said 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 Gill’s other investments, he has been making potential hints about X. In early September, he posted an image from the Toy Story film franchise of a child dropping a toy with a dog’s face superimposed on his head. Chewy uses dogs in many of its marketing materials.

Since then, Gill has not posted on the account.

How is Chewy doing?

Chewy beat Wall Street’s earnings expectations in its latest quarter, with revenue up 2.6%. The stock is up nearly 13% this year, better than the Dow Jones Industrial Average but well below the S&P 500’s year-to-date performance.

Industry analysts are raising their forecasts for Chewy’s earnings, with most forecasting an acceleration in sales growth next year.

How has the environment for meme stocks changed?

Meme stocks have more shares traded on the market than in 2021, which could reduce the likelihood of what’s called a “short squeeze.”

A short squeeze is a relatively rare event that can produce staggering profits for the people riding the wave. When investors bet that the price of a stock will fall in the future, they short it by borrowing shares and selling them. Later, if the price really drops, short sellers can buy shares, return the borrowed shares and pocket the difference.

There were approximately 305.9 million GameStop shares traded on the market in March, more than four times the number of shares it had in March 2021. This means stocks like GameStop are harder to move on momentum alone.

That short squeeze likely contributed to GameStop’s meteoric rise in 2021, but SEC staff said it was a small portion of the total buying volume and that GameStop shares remained high even after short sellers exited their trades.

What are the risks of participation?

If you want to take a chance on meme stocks like Trump Media, you need to buckle down and hope others share your enthusiasm.

The stock jumped 4% on Monday, 8% on Tuesday and then fell more than 20% on Wednesday.

The stock remains positive this week, and if that holds true, the gains will turn this winning streak into a six-week run. However, for seven weeks from late July to early September, the stock fell every week.

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