Bed Bath & Beyond Stock is always a favorite of short sellers

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Bed bath and beyond

stock last wave has caused serious problems for short sellers betting against the company. And it’s not easier for potential short sellersThat is.

After rising 29% on Tuesday,

Bed bath and beyond

the stock (ticker: BBBY) rose another 31% on Wednesday afternoon to $27.02. Unlike Tuesday, however, the rally did not extend to other meme stocks. Shares of

GameStop

(GME) and

AMC Entertainment

(AMC) were down 1.3% and 7.7%, respectively.

Ihor Dusaniwsky of short-selling analyst firm S3 Partners said his firm estimates Bed Bath’s short interest at $70.22 million, or 55% of the shares available for trading.

“We have seen an increase in shares being sold short even as BBBY’s stock price has recently soared,” Dusaniwsky wrote in an email. “That doesn’t mean there hasn’t been a short squeeze on BBBY, as many short sellers have reduced or closed their positions due to recent excessive market losses. short sellers who come to replace those who leave their trades.

Short sellers borrow stocks and then sell them back. Their hope is that the price will drop so that they can buy the same stock at a lower price to redeem the stock and pocket the difference between the sale price and the subsequent purchase price. It is a risky strategy because a stock can go up to infinity, while a long investment has limited downsides, since a stock can only go down until it hits zero. Short sellers must also pay interest on the value of the borrowed stock, called the stock borrowing fee.

When it comes to Bed Bath & Beyond, short sellers are having trouble finding short stocks, says Dusaniwsky. The stock borrowing fee for existing Bed Bath short positions is 13.6%, while new stock borrowings are subject to a 50% fee, according to S3. The average S&P 500 stock has a borrowing rate of 0.57% per year, according to Dusaniwsky. To sell short $1,000 in Bed Bath shares, an investor would currently have to pay $500 per year or $1.39 per day, compared to a fee of $5.70 per year or 2 cents per day for the average stock of the S&P500.

When heavily sold stocks rise, short sellers can generate even more buying demand as they rush to buy stocks to close their short positions. That’s why retail investors piled into stocks of heavily shorted companies like

GameStop

and

AMC Entertainment

in January 2021. This event, which sent GameStop stock parabolically, began around the time Co-founder of Chewy Ryan Cohen and two of his associates joined GameStop’s board of directors. Cohen, now president of GameStop, is an activist investor in the bed bath and won three board seats in March.

Bed Bath short-sellers shed $179 million in losses to market on Wednesday, based on this morning’s 25% gain, and $688 million in August. For the year, shorts were down $586 million.

“We expect the BBBY short squeeze to continue as market value losses continue to mount and more new short sellers enter these higher stock prices looking for a downside. stock prices,” Dusaniwsky added.

Short sellers bet against the stock, fearing the retailer could face a cash crunch. Bed Bath was one of seven companies Barrons identified last week due to its need to refinance its debt or borrow more. The company said it had $1 billion on its revolving credit facility.

“We have already taken action on many fronts, including a reduction of at least $100 million in [capital expenditure] against the company’s original plan,” a company representative said.

That doesn’t mean Wall Street is optimistic. B. Riley’s analyst Susan Anderson on Tuesday downgraded Neutral’s Bed Bath share for sale, arguing that the current valuation is “unwarranted”. She has a price target of $5.

Shares of Bed Bath are now up more than 400% in the past month, although they have fallen another 1% in the past 12 months.

Write to Connor Smith at connor.smith@barrons.com