Highlights
- Bed Bath & Beyond is poised for an epic short squeeze due to its low float, high short interest, and rising retail investor interest.
- Billionaire Ryan Cohen bought a 9.8% stake in the company in March 2022, and BBBY has made several significant changes to turn the company around.
- BBBY is the #1 trending stock ticker on Reddit WallStreetBets and could climb just like GameStop in January 2021.
A 349% three-week rise by Bed Bath & Beyond Inc., which has helped revive a wave of meme stock buying, stands in the face of alarm over the stock’s lofty valuation of Wall Street banks.
The buying spree turned on Tuesday as the stock rose as much as 79%, before extending gains to 29% and closing at $20.65 after a pair trading halt. The stock was the most actively traded company, as 385 million shares changed hands, more than 20 times the three-month average, data from Bloomberg showed.
The rally came even as at least three Wall Street banks downgraded the home-goods company and recommended investors to sell the stock amid a “meme stock frenzy.”
Susan Anderson at B Riley Securities on Tuesday cut her rating to sell from neutral, calling the retailer’s $1.65 billion valuation “unrealistic.”
Baird’s Justin Kleber downgraded shares last week, warning of a “fundamental risk/reward look unattractive” before the stock’s latest burst, accelerated market share losses and the company burning cash.
None of this deterred a buying boom from the retail business rush, which has pushed $99 million in stock since July 26, according to data compiled by Wanda. Net inflows included a record $46 million on Monday when the stock rose 24% to close at its highest level since late April, data shows.
Some investors are counting on the stocks to move forward. According to data compiled by Bloomberg, call options tended to trade above $45 by the end of the week, with other contracts betting on the stock to rise to $80 by mid-January, according to data compiled by Bloomberg. One of the most active derivatives associated with
Meme Frenzy
Bed Bath & Beyond short sellers have lost $662 million in mark-to-market paper losses this month, including a $218 million setback on Tuesday, data from analytics firm S3 Partners show.
The stock is “very squeezable” given the crowded short positions, and will likely operate even higher as short sellers are forced to cover their bets, S3 Partners managing director, Predictive Ihor Dusanivsky, managing director of analytics, said by email.
Companion meme stock GameStop Corp. and AMC Entertainment Holdings Inc. also saw a jump in activity. The video-game retailer soared 15%, halting trading, as the movie-theater operator wiped out losses to increase by 2.5%.
Bed Bath & Beyond was the most purchased asset on Fidelity’s platform as buy orders for Tesla Inc. more than doubled. Its ticker was most mentioned on Reddit’s Wallstreetbets and was trending on the popular chatroom StockTwitters.
Debt associated with the company also rose on Tuesday, followed by the stock, and was one of the top gainers in the high-yield market.
Even after the surge, the stock remains down 61% from its January 2021 peak, and analysts see more losses on the horizon.
Data from Bloomberg shows that the 12-month average price target of $4.49 represents a decline of nearly 80% from current levels. Two-thirds of analysts recommend investors sell shares, the largest number in at least a decade.
Ryan Cohen Effect
Ryan Cohen is a Canadian billionaire activist investor who is best known for helping the GME stock boom last year.
He bought 7,780,000 BBBY shares with 16,701 call options expiring on January 20, 2023 at $60 to $80 strike prices.
If exercised, Ryan Cohen would have 9,450,100 BBBY shares, giving him an 11.8% stake in the company.
BBBY stock has many similarities to GME Squeeze, so I’ve considered going in stock altogether
- Both BBBY and GME’s stock traded at $5.
- Ryan Cohen has only 2 stocks in his RC Ventures portfolio: GME and BBBY
- Retail investors lag behind GME to send it to the moon. BBBY has been getting massive social media attention lately.
- GME had little interest and was smashed into the mainstream media before being squeezed. Many media pundits (Jim Cramer) are now attacking BBBY.
- GME had 76 million shares outstanding in January 2021 prior to the 2022 4-to-1 stock split. BBBY has 75 million shares outstanding as of August 2022.
- The similarities are stark but what I love most is that Ryan Cohen is a long-term investor and has not sold a single BBBY share or call option.
Ryan Cohen’s BBBY Stock & Options Purchases
Here’s a chart listing all of his stock & call options purchases:
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His average BBBY cost basis is $15.34 yet BBBY shares are trading at a 16% discount as of August 15, 2022.
That means savvy investors can open a BBBY position at a cheaper price than Cohen did back in March 2022.
It’s likely not too late to invest in BBBY stock if you truly stand behind Ryan Cohen.
What to look for
Bed Bath & Beyond’s stock rally on Tuesday came even as another analyst turned bearish, setting a price target of just $5 per share, more than 75% below current price levels.
The stock “recently re-captured the attention of retail traders on the Wall Street Bets Reddit Forum, which gained notoriety during the GameStop saga in January 2021,” B. Riley financial analyst Susan Anderson wrote in a note to clients.
She insists that the stock continues to trade at an “unrealistic valuation,” although the recent rally could provide the company with a “long-term lifeline” if it raises money from stock sales similar to other meme stocks like Gamestop and AMC.
Risk
I don’t have a crystal ball, guys. There are several risk factors that constrain a potential squeeze.
Robinhood and other brokers remove the buy button and ban investors from buying BBBY stock (the same thing happened with GME).
BBBY makes stock offerings and dilutes its shareholder base.
Macro-economic factors cause a change in market sentiment and investors to start selling shares.
Retail investors listen to the mainstream media and sell BBBY shares instead of holding them.
But I believe the biggest risk is to bet against Ryan Cohen. This man sold Chewy to PetSmart in 2017 for $3.3 billion and then helped propel GME stock’s eventual rise.
Conclusion
BBBY is a high-risk, high-reward meme stock that could actually rise if retail investors capture FOMO with the stock.
The good news is that all of the recent retail investor interest may be driving more people to shop at Bed Bath & Beyond.
I don’t see too many opportunities like BBBY every day.
It could be GameStop 2.0 if everything goes perfectly.
