Why Chewy Stock Popped Then Dropped Today

Shares of pet e-commerce company Chewy (NYSE:CHWY) popped on Monday after a famous investor disclosed a massive stake in the business. But the move didn't hold. As of 10:15 a.m. ET, Chewy stock was down 4%. But it had been up by 10% in early trading and up even more than that in pre-market trading.

Chewy's up-and-down day

Keith Gill -- also known as Roaring Kitty -- is famous for his love of GameStop stock and he was an investor when it had its famous short squeeze in 2021. But today, Gill filed paperwork with the Securities and Exchange Commission (SEC) that showed he owns over 9 million shares of Chewy, or 6.6% of the company.

Gill's disclosure initially sent shares of Chewy soaring -- a lot of people monitor Gill and follow him into investments, as is the case with many famous investors. However, this is a good example of how futile it is to predict stock movements on a short-term basis. Early excitement led to big pre-market gains but the stock has surrendered all of those gains and more in less than one hour of trading. Where it trades by the end of the day is anyone's guess.

Is Chewy a value stock?

One thing to keep in mind with Gill's stake is that he looks for investments he believes are significantly undervalued. And I somewhat concur with Gill when it comes to Chewy. This business has enormous potential considering how many pet owners there are. And shares are cheaply valued at a price-to-sales ratio of just 1.

However, Chewy's growth has been lackluster in recent quarters. So things will need to pick back up for the investment to pan out well. But I can certainly appreciate why Gill would take such a large stake in this pet e-commerce business. And while I can't predict where the stock will trade today, I believe its long-term upside potential is strong.

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Jon Quast has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Chewy. The Motley Fool has a disclosure policy.