If you thought dipping fries in a chocolate shake was wild, Wendy's Co. (NASDAQ:WEN) has more tricks up its sleeve. After being mentioned on the WallStreetBets Reddit thread, the stock jumped a substantial amount. In true meme stock fashion, it has nothing to do with the fundamentals.
Here's how Wendy's became the next Reddit meme stock target—and what's to come for the influenced security.
Reddit users mentioned Wendy's and the stock went wild
Now at 10.44 million readers, r/WallStreetBets has a serious influence in the stock market. On June 6, users posted that Wendy's stock is undervalued because it offers dividend growth and capital appreciation. They referenced Wendy's growth opportunities that stem from a 13 percent increase in same-store sales, 85 percent of dining rooms open, and a combination of low trading volume and scarcity of outstanding shares (suggesting high institutional ownership).
This post influenced others to continue the conversation around Wendy's, which caused the share price to flourish at the onset of the business week. As of the market open on June 7, Wendy's stock immediately shot up 19.05 percent. The returns reached as much as 25.98 percent by the market open on June 9.
Wendy's and "chicken tendies"
What started as a fundamental analysis quickly turned into a purist "Wendy's to the moon" movement. The original Reddit user who posted about Wendy's left for work and came home to a whole new environment on the Reddit thread. The user updated the post by saying, "I know it isn't the short squeeze WSB loves so much but I think it should be a solid, worthwhile, long-term investment. And I will be buying more shares on Monday."
Despite the clarification, posts rolled on in meme-ified fashion. Posts labeled "10x'd my investment in less than one day with my wendy's tendies" and "Why all the negativity for Wendy's from some of you? All hail the red goddess and her divine tendies!" hit the thread.
Wendy's announces refinancing following WEN stock burst
On June 9, Wendy's announced that it's "refinancing of a portion of their outstanding securitization debt with a new series of securitized notes under the existing securitized financing facility."
This is mainly a testament to Wendy's plan to solidify its bottom line following the COVID-19 pandemic.
For shareholders, staying long-term might actually be beneficial for Wendy's stock, but buying in while the rally is ongoing could make it difficult to see sustainable returns. This is especially the case when the increase stems from popular influence rather than core fundamentals (as is the case with meme stocks).
How Wendy's stock (WEN) is faring after the big boost
A share value increase of 25 percent isn't the be-all-end-all in the meme stock world. After all, AMC (NYSE:AMC) is up 2,457 percent YTD. On June 9, WEN shares have dipped back down 9.68 percent, which proves the volatile nature of meme stocks. Many investors are selling after seeing quick day trading returns or executing intraday options contracts. As for whether Wendy's long-term potential is as viable as some say, we'll have to wait and see.