Bed bath and beyond (BBBY) – one of the original meme stocks with GameStop (EMG) and AMC Entertainment (ECMA) – rose in early 2021 as buying sprees fueled by Reddit and social media spurred huge short-term squeezes despite company fundamentals. Bed Bath & Beyond’s stock has risen again in recent weeks. But are shares of Bed Bath & Beyond a buy or sell now?
BBBY’s stock has soared this month amid renewed interest in the struggling furniture retail chain.
Gains accelerated on Tuesday after GameStop Chairman Ryan Cohen revealed in federal filings late Monday that he held call options on more than 1.6 million shares of Bed Bath & Beyond, with strike prices out of the money ranging from 60 to 80.
Encouraged by Cohen’s actions, traders on Reddit poured money into Bed Bath & Beyond stock, and it soared on August 15, rising 70% during the day before ending. settle for a gain of 29%. Shares rose again the next day, hitting a five-month high of 30 intraday before closing near session lows but still up 12% at 23.08.
But then, after market trading ended on August 16, Cohen’s RC Ventures announced plans to sell all 9.45 million shares of its Bed Bath & Beyond stock.
BBBY shares plunged on the news.
Meme Stock Mania: High Risk and High Reward
Cohen appeared to be betting that BBBY stock could rise as high as $80 per share before January 2023, when call options expire. The stock closed Monday at $16. Or, by buying those call options out of the money — and disclosing it — Cohen found a way to drive up stock and BBBY options prices before cashing them in.
Cohen’s RC Ventures currently owns 11.8% of Bed Bath & Beyond, according to FactSet. The activist investor seemed to have taken a particular interest in BBBY earlier this year. In March, he wrote a letter to the CEO of Bed Bath & Beyond expressing concern about the current growth strategy.
The surge in BBBY stocks seemed to offer a high-risk, high-reward situation, which caught the attention of retail traders on Reddit’s WallStreetBets forum, the grandfather of risky stock trading.
When a stock jumps this fast, it can be tempting to invest. However, given the volatile track record of meme stocks and especially the lack of profit, caution should be exercised, as the case of Bed Bath & Beyond demonstrated.
After shredding tens of billions of dollars of wealth in a meltdown last year, meme stocks began making a comeback earlier in 2022. The poster boy is video game retailer GameStop.
Most of the intense activity started on March 14, the day GameStop started gathering. After this surge, most stocks in the Roundhill Meme ETF (SAME) recorded gains.
GameStop is up 114% from lows. Struggling theater chain AMC Entertainment was also up around 90% around this time. Both stocks have shown volatility since then.
Bed Bath and Beyond Stock Fundamentals
Bed Bath & Beyond, based in New Jersey, has retail stores across the United States and specializes in 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 seen a string of quarterly losses and last turned a profit in the second quarter of 2021.
In the first quarter of 2022, BBBY missed Wall Street forecasts. The company’s EPS fell from 5 cents per share in the first quarter of 2021 to a loss of 2.83 per share in 2022. Sales fell 26% to $1.4 billion in the first quarter of this year, the fourth consecutive year-over-year decline.
Acting CEO Sue Gove told investors in late June that “high inflation and swings in buying habits” had hurt business.
“The simple reality is that our first quarter results did not meet our expectations,” Grove said.
Bed Bath & Beyond is expected to report its second quarter results in September. Analysts are predicting a loss of $1.59 per share and $1.5 billion in revenue, according to FactSet. Wall Street is forecasting a loss of $6.22 per share for the full year on sales of $6.5 billion.
Of course, even equity investors look beyond a company’s weak fundamentals. In fact, weak fundamentals and a dubious outlook can be a plus, as it’s an ideal environment for big shorts.
Bed Bath & Beyond Stock Analysis
BBBY stock hit a 52-week low of 4.54 on July 27, but is now up around 350% from that point
Bed Bath & Beyond’s stock broke its 200-day line on Aug. 15 and has continued to rise ever since, according to MarketSmith analysis.
If an investor is considering buying a meme stock, despite the huge risks, he should look for buy points or key technical levels. BBBY stock arguably offered a super aggressive entry on Monday as it crossed the 200-day line.
But after a meme stock moves beyond these zones, the risks are huge, especially after investors and the trade media start paying close attention. This is the time to sell meme stock, or at least take partial profits.
BBBY stock is 61.5% above its 200-day line and 219% above its 50-day average. Risks are high that stocks will dip back to or below these levels.
BBBY stock ranks seventh Retail – Furniture industry group. The stock has a 59 composite score out of 99.
It has a relative strength rating of 97, an exclusive IBD Stock Check stock price movement gauge with a score from 1 to 99. The rating shows how a stock’s performance over the past 52 weeks holds up against all other stocks in the IBD database. The stock’s EPS rating is 7.
BBBY Stock To Buy?
Bed Bath & Beyond, like most meme stocks, has terrible fundamentals, with a losing streak and rapidly declining earnings. Technically, BBBY stock has been hot, but it is well off the moving averages and is now getting a lot of media attention. This is a sell signal, not a buy opportunity.
A key catalyst for the recent rise of Bed Bath & Beyond, GameStop’s Ryan Cohen, could now be a catalyst for a big retirement.
At the end of the line : Bed Bath & Beyond stock is not a purchase. Any investor who currently owns BBBY shares should consider selling all or part of their position at current levels.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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