The social media buzz around certain highly shorted companies is starting to build once again. For investors in Petco (NASDAQ:WOOF), this buzz has led to some incredible intraday volatility. In late morning trading, WOOF stock surged more than 11% higher from yesterday’s close. But at the time of this writing, shares are now down over 1% as investors appear to be brushing off a key prospective catalyst.
What is this catalyst, you might ask? Well, it’s a meme of course, courtesy of Keith Gill. Also known as Roaring Kitty, Gill is the man behind the previous GameStop (NYSE:GME) short squeeze.
Roaring Kitty posted a meme of a cartoon dog today and retail investors lost their minds trying to figure out which stock he might be thinking of — or whether this meme could be tied to his core GameStop positions in some way.
Let’s dive into what this new craze could mean for Petco and why WOOF stock soared then crashed on the news.
WOOF Stock Soars and Crashes on a Single Post
Gill has to know by now that his posts move markets. His tweet of a dog sent many pet-related companies on a run. Petco was certainly a notable beneficiary, with Ryan Cohen-founded Chewy (NYSE:CHWY) being the other.
Petco’s status as a highly shorted stock certainly plays into his thesis around companies that could be short squeeze candidates. And, with the company’s relatively low share price, taking an options bet on such a company wouldn’t be overly expensive. In theory, this is the kind of stock one betting on a short squeeze may already have short listed. Accordingly, it’s no surprise to see the market’s immediate reaction.
That said, as I discussed in a previous piece around the big move in Chewy today, it’s possible that Gill was testing the market with this tweet. He hasn’t announced anything yet. And until he shows investors his updated positions (and he has millions in capital left to put to work if he wishes), it’s clear many in the market are not necessarily sold on the idea that Gill is in any of these names just yet.
For now, I think this is an intriguing story to follow. For retail traders out there looking to speculate on some companies, maybe there’s enough to this story to entice a trade. Personally, though, I think there’s simply too much risk involved with any of these names, as evidenced by the move in most meme stocks this afternoon.
On the date of publication, Chris MacDonald did not hold (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.
