CHWY - 3 Big Reasons to Avoid Stocks in Roaring Kitty's Crosshairs
2024-07-12 07:00:00 ET
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
If you’re looking for stocks to avoid, you might want to start with GameStop (NYSE: GME ) and Chewy (NYSE: CHWY ).
“Roaring Kitty,” the nom de plume of meme-stock investor extraordinaire, Keith Gill, bought into GameStop. Then, continuing on the Ryan Cohen theme, Gill bought shares of the online pet goods retailer that Cohen co-founded.
Google “Keith Gill’s net worth” and you’ll get a lot of answers. A screenshot of Gill’s portfolio in early June showed his net worth at least $289 million according to CNBC reporting.
You do not want to emulate what Roaring Kitty is doing with his largesse. To gain this kind of money, and then treat it so casually, is tantamount to financial malpractice.
Sure, he’s not acting in an official role as a financial advisor. But plenty of people will think they too can strike lightning in a bottle.
So, let’s explore three reasons to avoid all Roaring Kitty stocks.
He’s Bet on Two Very Iffy Stocks
Together, GameStop and Chewy have generated $253 million in EBITDA in the trailing 12 months from revenue of $16.16 billion , an EBITDA margin of 1.6%. Nvidia’s (NASDAQ: NVDA ) EBITDA margin of 63.5% in the latest 12 months is 40x better.
Suffice to say, the gap in quality between these two types of businesses, is “Grand Canyon” is size and scope.
On July 1, Gill filed his Schedule 13G indicating he held 9,001,000 shares of Chewy. These shares were bought June 24. Based on Chewy’s current share price of $26.47, the 6.6% stake in Chewy is worth a little over $218 million.
According to its latest proxy , that would make Gill the fourth-largest holder of Class A shares (1 vote each) behind only BC Partners — who own all 298.9 million Class B shares (10 votes each), which can be converted into Class A shares — Baillie Gifford & Co. (13.5%) and Vanguard (7.0%).
Except for Gill, All of Chewy’s Top Investors are Diversified
BC Partners is an alternative asset manager. By nature, its objective is to buy good businesses, improve them and then sell them for a big profit.
Its most recent sale of Chewy stock was on July 1, selling 1.34 million Class A shares at prices between $29.44 and $32.47 a share. In January, it sold 12.325 million at $20.29, likely its biggest share sale yet.
The only reason BC Partners is still holding any shares five years after its IPO at $22 is to ensure they get a better return on their investment. It is ready to exit, prices willing.
Over 128 investments are valued at more than 170 billion euros ($183.87 billion). The upper middle market investor has plenty of diversification to enable it to wait for the best Chewy outcome. The same goes for Baillie Gifford and Vanguard.
Apparently, Gill has all his eggs in two baskets. Not even Warren Buffett is that focused on his investments. And I don’t think we’re ready to put Gill in the Investor Hall of Fame just yet.
Ryan Cohen Has Yet to Prove Himself
It’s difficult to believe that on his own, Gill amassed the $218 million required to buy the 6.6% interest in Chewy.
It’s a wild theory, given GameStop’s board has given the green light for Cohen’s joint roles of CEO and portfolio manager. Additionally, the company’s two ATM (at-the-market) markets brought in $3 billion in new cash.
Regardless if all of my speculation is poppycock, the important thing to remember about Ryan Cohen is that he has yet to prove himself. He couldn’t make Chewy profitable as its CEO and he’s spent close to four years on GameStop with no concrete plan for its revival. Thus, you ought to be very careful about following the moves of Roaring Kitty.
They’re bound to come back to bite you.
On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines .
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.
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