In the days and weeks before Keith Gill's (aka Roaring Kitty) 6.6% stake in Chewy Inc (NYSE:CHWY) was revealed Monday, speculators were betting another major meme stock player would be a big buyer of the stock: Ryan Cohen.
Thoughts centered around Mr. Cohen's using GameStop Corp (NYSE:GME), where he is Chairman and CEO, to buy shares of the online pet supply retailer. Notably, on December 5, 2023, the Board of Directors of GameStop approved a new investment policy that permits the Company to invest in equity securities, among other investments. This provides Cohen the flexibility to invest directly in companies like Chewy.
In addition, GameStop has a pocket full of cash that investors are clamoring for the company to put into play. Since May, GameStop has raised over $3 billion from stock sales through "at-the-market" equity offering programs, helped in part by a new phase of the meme stock craze first witnessed in 2021.
Cohen is no stranger to Chewy. He founded the company in 2011 and was its CEO until 2018. Chewy was sold to BC Partners/PetSmart for $3.35 billion in 2017 and went public again in 2019.
It is possible that Roaring Kitty's play on Chewy is to preempt GameStop's buying of the stock and help create one of his famous short squeezes. He is a top 5 holder at both companies, although investors question whether he is getting some private backing.
If Cohen were to use GameStop to buy shares of Chewy, one prominent player would stand in the way—BC Partners. The private equity firm continues to own the vast majority of Chewy's stock, although it has been selling it down. In fact, traders believe the recent weakness in the stock is related to BC Partners' selling. Notably, the P/E firm sold more than $660 million in stock on June 26 and 27th, with Chewy buying back $500 million of the stock sold.
Whether Cohen is buying Chewy stock remains to be seen. However, analysts expect volatility to reign supreme in the stock over the near term.
"Investors should brace for a period of extended volatility, even if meme stock trades don't have the same momentum as the GameStop saga back in 2021," CFRA analysts commented after today's Gill filing. "There are a few similarities between GME and CHWY, including ties to Ryan Cohen and high short interest. However, a stark difference between the two companies is the fundamental tailwind behind CHWY, noting the company recently hit an inflection point in terms of profits and free cash flow."
The analyst added that the short interest as a percentage of the float is about 15%. However, the short interest as a percentage of shares outstanding is about 5%, as only about one-third of Chewy's 436M shares outstanding are free floating. The analyst rates shares a Hold with a $23 price target.
GameStop has not responded to requests to comment on rumors that it would buy Chewy stock, and Chewy has not responded to requests to comment about the Roaring Kitty stake or the rumored Cohen stake.