Chewy’s stock price began to fluctuate wildly after internet celebrity Roaring Kitty revealed a large stake, but Wall Street analysts believe being labeled a meme stock is not good for the pet retailer. The Meme stock leader, whose legal name is Keith Gill, has taken a 6.6% stake in Chewy, making him the third-largest shareholder. An initial boost in shares – which surged 18% in two days early last week – quickly faded, with shares down more than 5% on Monday. While Chewy’s fundamentals are much better than those of GameStop or AMC, analysts say rising volatility and potential meme status could hurt the retailer, whose stock soared during the pandemic before retreating. “We view this morning’s share price action and additional volatility as a potential exit opportunity for investors,” said Mizuho analyst David Bellinger, who has a neutral rating on Chewy. “Escalating, unpredictable And the difficult-to-track news flow could lead to a shrinking of the institutional investor base and an increase in the likelihood that they will become increasingly hesitant to hold the stock and/or exit their current positions. Chewy’s stock price has also been hit by a sell-off from its biggest backers. The impact of the stock sale by shareholder private equity firm BC Partners, which recently sold 17.6 million shares back to Chewy for $500 million, also sold more than 5.3 million shares in the open market on Thursday, the same day Gill posted. A photo of a cartoon dog resembling the Chewy logo sparked a huge rally, with many believing BC could use any gains in Chewy stock to sell more shares, putting a temporary cap on the stock. “We assume it plans to buy today. Some (Roaring Kitty) fans of the stock are unaware that BC is a seller and are ready to take advantage of another high-volume meme spike if it occurs for more than an hour or two, said Gordon Haskett, head of event-driven research That dynamic could come into play on Monday, with Chewy’s stock opening up 9% but quickly giving up all those gains and turning lower, Don Bilson said in a note. “With BC still holding approximately 275 million shares (approximately 66% of total diluted shares outstanding), indicating a ceiling on the upside, increased retail interest in the name may be met by greater selling pressure from BC,” Basham said. Impact. Still, Wedbush rates Chewy an outperform, saying the company continues to gain market share and significantly expand margins in the retail segment, which may be “coming out of the woods.” —CNBC’s Michael Bloom contributed reporting.
