Fast-food chain Wendy’s soars 40% on meme-stock hype
Wendy's highly shorted shares jumped to a more than seven-month high on Wednesday as retail traders flocked to the beaten-down stock / Photo: Shutterstock.com / Jonathan Weiss
Shares of fast-food chain Wendy’s advanced more than 40% on Wednesday as retail investors pile into the stock. The stock has become one of the most-discussed topics on Reddit, while analysts are flagging a potential short squeeze (when a rising share price forces investors betting against the stock to buy shares to close their positions), pushing the stock even higher, Reuters reports.
Details
Wendy’s climbed 40% in early trading on the New York Stock Exchange before paring some gains, remaining up more than 30% as of this writing. Trading in the stock was briefly halted due to heightened volatility.
The scale of the rally suggests that social-media activity surrounding the stock was the primary driver, CNBC notes. According to Swaggy Stocks, which tracks retail-investor forums, Wendy’s ranked second in mentions on Reddit over the last 24 hours, with "a slew of posts" on WallStreetBets forum, Barron’s writes. Wendy’s shares have lost around half their value over the last 12 months, and social-media users are framing the company as a potential turnaround story. One widely shared post urged investors to “save Wendy’s before it’s too late.” Other posts described the restaurant chain as a beaten-down consumer brand that retail investors could rally behind.
The surge in interest echoes previous meme-stock stories, including GameStop, when retail traders piled into stocks against which there were large short positions.
For Wendy’s, that dynamic could be "particularly relevant," CNBC reckons. According to S3 Partners data it cited, about 23% of the company’s free float is currently sold short. That leaves the stock vulnerable to a short squeeze.
What Wall Street thinks
A short squeeze in Wendy’s shares has yet to get underway, according to ORTEX cofounder Peter Hillerberg, who was cited by Reuters. He said that most investors with short positions are still near their entry prices and are not yet under pressure. “That only changes if the rally keeps running,” Hillerberg cautions.
Despite the enthusiasm among retail traders, Wall Street remains cautious on the name. According to MarketWatch data, 17 of 27 coverage analysts rate the stock a "hold." Another five recommend "buy," and another five "sell." The average target price is $7.79 per share, implying 24% upside versus the Tuesday closing price.
