How Chewy's stock is shedding its meme-stock past amid strong execution

MW How Chewy's stock is shedding its meme-stock past amid strong execution

By James Rogers

Influential trader Keith Gill, also known as Roaring Kitty, may have dumped his Chewy stake, but the company's stock is still up more than 40% this year

Chewy Inc. was thrust into the spotlight earlier this year when influential trader Keith Gill, also known as Roaring Kitty, amassed a 6.6% stake in the online retailer of pet products.

Gill, a key figure in the 2021 meme-stock frenzy, subsequently dumped his stake, sending Chewy shares $(CHWY)$ tumbling.

Now attention has shifted away from the meme-stock buzz to the company's fundamentals. Chewy beat analysts' sales estimates in its third-quarter results earlier this month, with CEO Sumit Singh noting a sequential increase in active customers. The company, he said in a statement, "continued to build on the positive momentum" it saw in the second quarter.

Related: Keith Gill, aka Roaring Kitty, has dumped his stake in Chewy

Chewy's performance has caught the attention of analysts. "Strong execution & improving industry trends support active customer growth," J.P. Morgan analyst Doug Anmuth wrote in a recent note. Anmuth also pointed to Chewy's product enhancements and highlighted the company's "meaningful" profitability ramp. J.P. Morgan raised its price target on the stock to $38 from $37 and reiterated its overweight rating for Chewy.

JMP Securities also raised its Chewy price target earlier this month, to $37 from $34, and maintained its market-outperform rating. With regard to growth initiatives, JMP Securities analyst Nicholas Jones said that sponsored ads were the largest contributor to Chewy's gross profit margin expansion. Chewy's Vet Clinics "continue to show promising signs," the analyst added in a note.

Wedbush raised its Chewy price target to $39 from $35 and reiterated its outperform rating. "[Chewy] continues to gain market share and materially expand margins in a soft industry environment," Wedbush analyst Seth Basham wrote in a note.

Related: Chewy's stock jumps toward fresh highs after BofA's U-turn to a bullish call

Of 31 analysts surveyed by FactSet, 16 have an overweight or buy rating and 15 have a hold rating for Chewy.

Set against this backdrop, Chewy's stock is up 42.6% in 2024, compared with the 34.6% decline of original meme stock AMC Entertainment Holdings Inc. $(AMC)$.

The company's shares are up 4.5% Monday and are on pace for their largest percent increase since Nov. 20, 2024, when they rose 5.1%, Dow Jones Market Data show. The stock is currently up four of the past five days.

Related: This company's performance is challenging the traditional definition of meme stocks

Last week Chewy announced a public offering of $500 million of its shares by Buddy Chester Sub, which is affiliated with funds advised by BC Partners Advisors LP, Chewy's largest shareholder. Chewy agreed to purchase $50 million of Class A common stock from the selling stockholder, the company said in a statement.

-James Rogers

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December 16, 2024 16:07 ET (21:07 GMT)

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