As Meme Stock Focus Turns From GameStop, Chewy Poised for Price Surge

The great thing about trading and investing is that you never can tell exactly what will happen next.

Take this week’s revelation that Keith Gill, aka Roaring Kitty, has purchased 6.6% of the outstanding shares of online pet supply company Chewy CHWY. When we recommended this stock on May 30, 2024, we never imagined that Gill was also a buyer.

It’s possible that Gill will attempt to sway GameStop GME shareholders into buying Chewy. Expect Gill to present his thesis via a YouTube livestream, and posts on X and Reddit. Thanks to GameStop, we already understand the focused power of retail traders. It’s possible that Gill could now persuade retail traders to focus on Chewy.

Chewy is the superior investment, though this is faint praise. If Gill can convince his followers to swap GameStop for Chewy, he’d be doing them — and us — a big favor.

We recently traded GameStop, and our full game plan was laid out here. When our first profit target of $31 was reached, the stop was raised to $23, as stated in the plan. Then GameStop retreated to $23, resulting in a profit on one-third of the trade, and breakeven on the rest. 

We’re rolling the GameStop proceeds into Chewy, augmenting our initial position in that stock.

Here’s why:

It’s my belief that Gill was unhappy with last week’s GameStop investors’ meeting. After the June 17, 2024, meeting, which sent shares tumbling, he posted a picture of tennis legend John McEnroe on X.

McEnroe’s famous line? Shouting at the umpire, “You can not be serious!”

Soon after, he posted a picture of a forlorn Bruno, a character from the Disney film "Encanto." 

Then he went silent, until he posted a picture of a dog late last week. That post led many investors to correctly guess that Chewy was his next pick, and caused the stock to soar.

How high could Chewy rise? If Gill announces a YouTube livestream, as he did with GameStop on June 7, 2024, I wouldn’t be surprised to see Chewy trade in the $40s. Chewy reached $39 on Thursday, when traders correctly connected his latest X post to the stock (red arrow). 

To compare these two names, let’s analyze their outstanding shares. GameStop has 426 million shares outstanding, versus 436 million for Chewy. That’s a fairly equal number of shares, but those two numbers are moving in opposite directions.

GameStop, in an effort to raise money, recently dumped an additional 120 million shares on the market. While this move provides GameStop with an impressive war chest, it also dilutes the outstanding shares. Ultimately, this will make it harder for the shares to rise, since each share now represents a smaller piece of the company.

Meanwhile, Chewy is moving in the opposite direction by actually reducing its number of shares outstanding. The company recently purchased 17.5 million shares from Chewy’s largest shareholder, BC Partners Advisors, thus removing them from the open market. By lowering its share count, Chewy is creating a more favorable environment for shareholders.

To put it simply, one company sees enough value in its own shares to buy them, while the other is destroying shareholder value by selling them. That’s a pretty stark difference, and one that could push retail investors away from GameStop, and toward Chewy. 

At the time of publication, Ponsi was long CHWY.