Reddit is once again staging a short squeeze: Wendy’s shares surged 30% following the GameStop scenario.
Last Wednesday, shares of burger chain Wendy's (WEN) surged nearly 30%, echoing the classic meme stock scenario of 2021. The rally was initiated by the WallStreetBets community on Reddit, whose members began massively buying the company's assets, ignoring weak fundamental indicators.
At the peak of the trading session, the price of one Wendy's share came close to the $8.89 mark. The abnormal volatility forced exchanges to halt trading at least once. Notably, this surge occurred against the backdrop of the restaurant chain's ongoing sales decline.
Rally Mechanics: Short Squeeze in Action
The movement started with a deleted post on WallStreetBets, whose author urged "saving Wendy's before it's too late." It was followed by dozens of messages with reports of stock and option purchases. The activity was confirmed by a surge in interest: over 202 million shares were sold and bought in a single day — 15 times the average trading volume.
According to S3 Partners, the short interest in Wendy's shares was about 23% — more modest than GameStop's during the historic short squeeze of 2021 (over 140%), but sufficient to trigger a chain reaction. The rapid price increase forces large players to cover shorts and hastily buy back assets, further accelerating the quotes.
Fundamental Backdrop: Hope for New Management
Market participants reacted not only to speculative interest. A key fundamental event was the appointment of Steve Cirulis as Wendy's CFO. He previously successfully led the financial division at Potbelly, where, in tandem with current Wendy's CEO Bob Wright, he increased the company's market capitalization more than fivefold. The arrival of the new team is part of a global plan to revitalize the chain called Project Fresh.
However, operational problems have not disappeared. In the first quarter, comparable restaurant sales in the US fell by 7.8%, and net profit dropped to $22.7 million. The current rise in quotes is driven by investor emotions, not real business successes.
My view as an analyst: History repeats itself. In June 2021, Reddit already called Wendy's an excellent candidate for WallStreetBets, and shares rose by 26% then, but the rally completely fizzled out a few weeks later due to a lack of critical short interest. The current wave of growth is backed by real short volume, providing a strong impulse. However, historical experience shows that assets hyped by Reddit users often quickly lose their gained positions. Whether the upward trend will continue depends solely on long-term interest from retail players.