Some Brutal Roaring Kitty Math

OK, he’s back, and here I find myself writing about him yet again, this time about some brutal math that has followed Roaring Kitty’s moves.  Bottom line: most people who bought stock in his wake are losing money.

 Last week, when I thought that the bulk of the GameStop (GME) story was behind us, another cryptic Roaring Kitty tweet appeared – this time in the form of a cartoon puppy.  Those who are adept at interpreting memes immediately bid up shares of Chewy (CHWY) and Petco (WOOF).  Traders then focused more on CHWY on the basis that it was founded by GME’s current Chairman, Ryan Cohen.  That opinion then proved correct yesterday when Keith Gill filed an SEC 13G acknowledging a position of 9,001,000 shares, or 6.6% of the company.  (btw, I’ve never yet seen a filing that included the statement, “I am not a cat”.)

When asked for comment yesterday, I noted, “This is a game changer. Having a position sizable enough to justify a filing is very different than signaling moves via cryptic memes.”  From here on out, or at least until his position shrinks below the reportable 5% threshold, Keith Gill will need to report changes to his position in SEC documents, not just memes and scans of brokerage statements.  This should not be too much of a hardship, as the aforementioned Cohen proved in a masterful, yet apparently legal, series of filings about his purchase and immediate sale of share in the now-defunct Bed Bath & Beyond in August 2022.  While the recent trades in GME and CHWY have not proven to be as disastrous for those who chased BBBY, by and large, they have not proven profitable for most of those who bought and held positions in those stocks.

Put simply, the volume weighted average price (VWAP) of GME from May 13^th, when Roaring Kitty roared back, through yesterday was $30.50.  Compare that to yesterday’s $23.33 closing price.  When we consider that every trade has a buyer and a seller, it means that the average share purchase was down over $7, or about -23%.  Clearly not all buyers held their shares during the whole period.  Many obviously bought and sold, probably more than once, during the past few weeks.  But many of those who believed that the involvement of Roaring Kitty would lead to a profitable long-term investment now find themselves underwater. 

And here’s an even crazier part – the company hasn’t made money on their sales either!  According to GME’s 8-K filed on May 24^th, they reported selling 45 million shares for gross proceeds of about $933 million.  That means that the company sold shares for $20.74 or less.  That doesn’t look terrific in hindsight, but as we noted before, companies don’t sell big slugs of their own stock if they believe it is undervalued.  Thus, GME management doesn’t share the view that a $20+ share price is a long-term value.

This may be why the reaction in CHWY has been far more muted.  From Thursday, when CHWY first popped, through yesterday, the VWAP was $28.77.  That compares with yesterday’s $25.44 close.  One has to wonder if the “half-life” of Roaring Kitty’s actions has shrunk dramatically because there are simply not enough of the faithful making money on their purchases. 

The stock price was not helped by the fact that Buddy Chester Sub LLC, a wholly-owned subsidiary of Petsmart, the second largest holder and former merger partner of CHWY, sold over 1.3 million shares on Thursday at an average price of $27.24.  That trade looks much better than GME’s sale right now.

About a month ago we pondered whether the “us versus them” mentality that drove much of the original meme-stock mania had taken a darker turn.  With fewer institutions willing to short these stocks in big size, the universe of potential investors has shrunk significantly.  There is no “them” anymore.  These are certainly very active stocks among traders, and I will not tell traders with solid risk discipline to avoid getting involved in fast-moving, volatile situations.  But for those of you who believe there is a solid investment thesis among Roaring Kitty’s actions, remember our admonition, “if you’re not sure who “them” is, perhaps “them” is “you”.  So far, the arithmetic bears that out.