Bed Bath & Beyond — one of the original meme stocks along with GameStop and AMC Entertainment — spiked higher in early 2021 as Reddit- and social-media-fueled buying frenzies spurred tremendous short squeezes despite lousy company fundamentals. Bed Bath & Beyond stock has been surging again in recent weeks. But is Bed Bath & Beyond stock a buy or a sell now?
BBBY stock has skyrocketed this month amid revived interest in the struggling home-furnishings retail chain.
The gains accelerated Tuesday after GameStop Chairman Ryan Cohen disclosed late Monday in federal filings that he owns call options on more than 1.6 million Bed Bath & Beyond shares, with deep out-of-the money strike prices from 60 to 80.
Encouraged by Cohen's actions, Reddit-dwelling traders sank money into Bed Bath & Beyond stock, and it soared on Aug. 15, up 70% intraday before settling for a 29% gain. Shares ran up again the next day, hitting a five-month high of 30 intraday before closing near session lows, but still up 12% to 23.08.
But then, after market trading ended Aug. 16, Cohen's RC Ventures filed its intention to sell all 9.45 million shares of its Bed Bath & Beyond stock.
BBBY stock tumbled more than 20% Thursday. On Thursday afternoon SEC filings showed that RC Ventures had sold off all its BBBY shares Tuesday and Wednesday at prices between $18.65-$29.22 per share. Cohen had purchased his Bed Bath & Beyond stocks on average for around $15.30 per share.
Bed Bath & Beyond shares shed 40% to 11.13, dropping below its 200-day moving average, early in Friday's market trading.
Meme Stock Mania: High Risk And High Reward
Cohen seemed to be betting that BBBY stock can rise as high as $80 per share before January 2023, which is when the call options would have expired. The stock closed Monday at $16. But by buying those out-of-the-money call options — and disclosing that — Cohen found a way to push up the BBBY stock and options prices before cashing out.
Cohen's RC Ventures owned 11.8% of Bed Bath & Beyond, according to FactSet. The activist investor seemed to have taken a specific interest in BBBY earlier this year. In March, he wrote a letter to Bed Bath & Beyond's CEO expressing concern with the current growth strategy.
The soaring BBBY stock earlier in the week seemed to offer a high-risk, high-reward situation, which caught the attention of retail traders on Reddit's WallStreetBets forum, the progenitor of risky meme stock trading.
When a stock jumps that fast, it can be tempting to invest. However, given meme stocks' volatile track record and mostly lack of profit makes them an area to tread carefully, as demonstrated in Bed Bath & Beyond's case.
After shredding tens of billions of dollars of wealth in a meltdown last year, meme stocks began to stage a comeback earlier in 2022. The posterchild is video game retailer GameStop.
Most of the intense activity kicked off on March 14, the day GameStop started rallying. After that surge, most of the stocks in the Roundhill Meme ETF saw gains.
GameStop spiked 114% from lows. Struggling theater chain AMC Entertainment also shot up roughly 90% at that time. Both stocks have shown volatility since then.
Bed Bath & Beyond Stock Fundamentals
The New Jersey-based Bed Bath & Beyond has retail stores across the U.S. and specializes in home furnishings including bedding and bathroom accessories. However, like other retailers, the company has been hit by inflation and supply-chain issues.
Bed Bath & Beyond has had a string of quarterly losses, and last turned a profit in the second quarter of 2021.
In Q1 2022, BBBY missed on Wall Street predictions. The company's EPS plummeted from 5 cents per share in Q1 2021 to a loss of 2.83 per share in 2022. Sales fell 26% to $1.4 billion in this year's first quarter, the fourth straight year-over-year decline.
Interim CEO Sue Gove told investors at the end of June that "steep inflation and fluctuations in purchasing patterns" have hurt business.
"The simple reality though is that our first quarter's results are not up to our expectations," Grove said.
The company has also hired the law firm Kirkland & Ellis to review its debts amid slumping sales, Bloomberg reported late Thursday, citing a source. Kirkland & Ellis is known for helping businesses restructure and deal with bankruptcy.
Bed Bath & Beyond is due to report second-quarter results in September. Analysts predict a loss of $1.59 per share and $1.5 billion in revenue, according to FactSet. Wall Street is projecting a loss of $6.22 per share for the full fiscal year on $6.5 billion in sales.
Of course, meme stock investors look past a company's weak fundamentals. In fact, weak fundamentals and dubious prospects can be a plus, because that's a great environment for big short selling.
Rally Won't Do This; BBBY's 'Reversion To The Meme'
Bed Bath & Beyond Stock Analysis
Bed Bath & Beyond shares dropped below its 200-day moving average Friday morning after advancing above the key line on August 15, according to MarketSmith analysis. The stock had shot up to a five-month high of 30 intraday Wednesday. BBBY stock had hit a 52-week low of 4.54 on July 27.
If an investor is going to buy a meme stock, despite the enormous risks, they should look for buy points or key technical levels. BBBY stock arguably offered a super-aggressive entry on Monday, as it cleared the 200-day line.
But after a meme stock gets moving beyond such areas, the risks are enormous, especially after investors and business media start paying close attention.
That's likely a time to sell a meme stock, or at least take partial profits.
BBBY stock ranks seventh in the Retail-Home Furnishings industry group. The stock has a 43 Composite Rating out of 99.
It has a 95 Relative Strength Rating, an exclusive IBD Stock Checkup gauge for share price movement with a 1 to 99 score. The rating shows how a stock's performance over the last 52 weeks holds up against all the other stocks in IBD's database. The stock's EPS rating is 7.
BBBY Stock A Buy?
Bed Bath & Beyond, like most meme stocks, has terrible fundamentals, with a series of losses and fast-declining revenue. Technically, BBBY stock has been hot, but is greatly extended from moving averages and is now getting a lot of media attention. That's a sell signal, not a buying opportunity.
A key catalyst for Bed Bath & Beyond's recent rise and sell-off was GameStop's Ryan Cohen.
Bottom line: Bed Bath & Beyond stock is not a buy and flashed massive sell signals in the past couple of days. Any investors who own BBBY stock now should consider selling some or all of their position at current levels.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
