Chewy Stock Surges on Roaring Kitty's Disclosure of Major Stake

Key Points

• Chewy Inc. shares surged as much as 29% in premarket trading Monday after Keith Gill, known as "Roaring Kitty," disclosed a 6.6% passive stake in the company.
• Based on Friday's closing price, the SEC filing reveals Gill owns roughly 9 million Class A shares valued at about $245 million.
• Interestingly, while Chewy's shares soared, GameStop shares plummeted nearly 9% in premarket trading.

Chewy Inc. NYSE: CHWY shares spiked as much as 29% in premarket trading Monday after Keith Gill—known online as "Roaring Kitty"—disclosed a 6.6% passive stake in the online pet food and product retailer. 

The US Securities and Exchange Commission filing reveals that Gill owns roughly 9 million Class A shares, valued at about $245 million based on Friday's closing price. This surge follows last week's brief spike in shares of Chewy and Petco Health and Wellness Co. NASDAQ: WOOF after Gill posted a cartoon image of a dog on social media platform X.

Keith Gill rose to fame during the GameStop stock surge in 2021, where his online persona, "Roaring Kitty," played a significant role in the meme stock movement. Monday's filing for Chewy lists June 24 as the event date and includes an amusing reference to Gill's Roaring Kitty persona. The SEC's Edgar database document has a section for the reporting person to "designate whether you are a cat," followed by two checkboxes. The box reading "I am not a cat" is marked.

Interestingly, as the news of Gill's stake in Chewy sent its shares soaring, GameStop shares plummeted in premarket trading, last down close to 9%. This drop comes amid news of Gill facing a new class action lawsuit over allegations of a pump-and-dump scheme involving GameStop Corp. The lawsuit, filed on June 28 in the Eastern District of New York, accuses Gill of manipulating GameStop's stock price through his social media influence. Plaintiff Martin Radev alleges that Gill discreetly bought a large number of GameStop call options before making a social media post on May 12, 2024, which sparked renewed interest in the company's stock.

Additionally, retail holders might be selling GameStop shares to purchase Chewy shares, aiming to follow Gill's investment moves.

Chewy’s Impressive Gains: Analyzing Earnings and Performance

Year-to-date, Chewy has posted impressive gains, with the stock up just over 15%, not accounting for today's premarket gains. Chewy last posted its earnings data on May 29, 2024, reporting $0.15 earnings per share for the quarter, beating the consensus estimate of $0.04 by $0.11. The firm had revenue of $2.88 billion for the quarter, compared to analysts' expectations of $2.85 billion. Over the past several years, revenue has largely met estimates, with modest upticks.

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From a valuation perspective, the stock does not appear to be the best value play, with a P/E ratio of 151 and a forward P/E of 81. A potential worrying sign for holders is that insiders have been selling shares this year. Over the past twelve months, five insider sales totaling roughly $756 million have been recorded, with no insider buys during the same period. However, the stock has a significant institutional ownership of 93.09%. During the previous twelve months, total institutional inflows have reached $504 million versus outflows of $168 million. 

Could CHWY be the Next Big Short Squeeze?

As of June 15, Chewy's short interest stood at just 4.58%, far from the levels seen in GameStop during the meme stock craze. This suggests Chewy is unlikely to experience the same volatility and outcome as GameStop.