Why Chewy Stock Jumped 28% Last Month

Shares of pet e-commerce company Chewy (NYSE:CHWY) jumped 28.4% in June, according to data provided by S&P Global Market Intelligence. It was an unusual month with trading fueled by ongoing speculation over who was buying and who was selling.

For example, Chewy stock spiked in mid-June on rumors that Ryan Cohen was buying shares on behalf of GameStop. Cohen founded Chewy but left the company in 2018. During the pandemic, he became an activist investor in GameStop and eventually took on the role CEO. And as CEO, he plans to invest GameStop's cash in other publicly-traded companies.

On June 20, Gordon Haskett analyst Don Bilson noted that recent gains for Chewy stock were being driven by speculation that GameStop was buying shares of Chewy under Cohen's direction, according to The Fly.

Investment firm BC Partners owned Chewy when it was a private company. It took Chewy public and still holds about 70% of the shares. For its part, the company had already announced that it would use its cash flow to repurchase shares. But on June 26, investors learned it would repurchase roughly $500 million from BC Partners at a set price of $28.49 per share.

In other words, Chewy stock went up due to speculation that Cohen was using funds from GameStop to buy shares. The company was already going to repurchase shares to boost shareholder value. But majority shareholder BC Partners seems to have used the higher stock price (fueled by GameStop rumors) as an opportunity to sell some of its shares back to Chewy.

Investors may see value in Chewy stock

If that's not complicated enough, the web of trading activity got a new twist in July. Keith Gill is an investor who made a fortune on stocks like GameStop during the original meme stock craze. Last month, Gill led people to believe that he could be acquiring a stake in Chewy, but on July 1, Gill disclosed a surprisingly large 6.6% stake in the company, worth around $250 million.

Investors don't yet know if Cohen's GameStop is indeed buying shares of Chewy, but Gill is known to look for what he believes are value stocks. The potential interest in Chewy from either of these investors supports the idea that Chewy is an attractive value.

That's about as far as ordinary investors should take this news. It doesn't ultimately matter who is buying Chewy stock or who is selling. What matters is how the business performs over the long haul.

One thing to watch closely

Chewy has interesting opportunities when it comes to ancillary services such as software for veterinary clinics. And it's able to repurchase shares thanks to marked cash-flow improvements in recent years.

But one area of interest for me is its active customer count, which has been stagnant for a couple of years now. For this investment to perform well beyond a single month like June, Chewy will need to gain and retain more shoppers from the vast pool of pet owners.

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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.