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Why The Chefs' Warehouse Stock Was Going Up on Wednesday

By Jon Quast – May 20, 2020 at 12:22PM

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Traders are looking for more upside for a stock that's already quadrupled since March.

What happened

Shares of The Chefs' Warehouse (CHEF -2.47%) were headed higher on Wednesday, at one point trading 12% higher. As of 11:45 a.m. EDT, shares had given a little back, but were still up 7% for the session.

Having more than quadrupled in value since March lows, The Chefs' Warehouse stock is garnering attention from traders, and their optimism may be the only thing explaining today's move. 

A businessman draws an upward arrow on a transparent touchscreen.

Image source: Getty Images.

So what

On Monday, The Chefs' Warehouse filed with the SEC, explaining that some of its board members would forgo their board retainer payment for a year. Then on Tuesday, the company announced shareholders had approved recommendations at the annual shareholder meeting. But these developments are hardly stock-moving revelations. 

Doing a simple volume (how many times shares trade hands) comparison with data available on Yahoo! Finance, traders have given The Chefs' Warehouse much more attention in the past 10 days than the three-month average.

Stock movements caused by traders with a short-term mentality are impossible to predict. Today it's up. But remember, it was just last week The Chefs' Warehouse stock was falling, after it announced a secondary stock offering that will dilute shareholder value. That's more material to investors than the reason the stock is going up today.

Now what

My suspicion is traders are looking at The Chefs' Warehouse stock simply because it's still down more than 60% from 52-week highs. As the U.S. reopens for business, the hope is this company can also normalize. But I'm not sure I share the optimism completely.

The Chefs' Warehouse supplies products to restaurants. Preliminary April data recently released from the Census Bureau shows sales for food-service and drinking places were down 49% from April 2019. While reports from publicly traded restaurant companies show sales starting to pick back up in May, sales are still down significantly from the year-ago period.

It will take time for The Chefs' Warehouse to get back to normal. The company knew this when it raised funds via the secondary stock offering. While I suppose some will make the case this is a value stock, it's not something I would want to hold for the long term. Organic revenue growth was a mere 4% in 2019, and the company is a low-margin business in the best of times.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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The Chefs Warehouse Stock Quote
The Chefs Warehouse
CHEF
$30.82 (-2.47%) $0.78

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