“We need to save Wendy’s.”
It was the rallying cry that rang out across the internet — specifically Reddit — on Wednesday.
The movement gathered steam quickly. Wendy’s shot to the top of the trending page for Stocktwits. It also was the top-mentioned stock on WallStreetBets, according to data from SwaggyStocks, handily overtaking Micron (ahead of earnings) and newly IPOed SpaceX. The volume of shares that changed hands — more than 200 million — was 23 times the average, with trading halted at one point.
As the movement gathered steam, Wendy’s stock followed suit, spiking on the attention and fervid buying. Shares climbed as much as 42% before finishing the day up 26%. It was the biggest increase since the peak COVID era of March 2020.
With that, a new meme stock was minted. Welcome to the club, Wendy’s.
But let’s take a step back. How does this keep happening? The market is wise to the meme-stock effect, yet new ones continue to pop up.
Wendy’s benefited from a familiar cocktail of factors:
The stock has been struggling
Don’t let Wednesday’s rally fool you. Even including that, Wendy’s shares are still down 70% over the past three years. An inflation-driven consumer pullback has hit the company, which has closed thousands of restaurants.
Short interest is elevated
When a stock has been in a prolonged descent, without much sign of life, short-sellers tend to swirl. That was the case with Wendy’s. Short interest in the stock has climbed from about 7 million shares three years ago to more than 50 million now, according to Bloomberg data.
When short interest is high, conditions are ripe for a squeeze. That happens when short-sellers are forced to close positions as a stock rises, pushing shares even higher.
People crave nostalgia
“We need to save Wendy’s” really says it all. The retail traders who backed the company were entering an unofficial club — one that fondly remembers Wendy’s more dominant days, when their junior bacon cheeseburgers and spicy chicken sandwiches were in hotter demand.
Nothing says meme stock like a formerly beloved brand that looks past its prime.
There’s been recent news
Retail traders love to piggyback off seemingly innocuous corporate announcements and use them as a reason to buy. In the case of Wendy’s, on Tuesday the company appointed a new CFO and chief strategy officer, who formerly held the same positions at Potbelly.
Wall Street isn’t particularly excited by the appointment or the company overall. A majority of analysts still have a “hold” rating on the stock.
But that hasn’t deterred the retail community. After all, when have institutional views held them back before?
