By James Rogers
Shares of Bed Bath & Beyond continued to skyrocket on Wednesday, as the retail crowd rallied around the meme stock once again.
After retail investors defied a Wall Street analyst’s warning that they should sell because of “unrealistic valuations,” Bed Bath & Beyond Inc.’s /zigman2/quotes/209801102/composite BBBY +0.16% stock gained 20.5% Wednesday. The beleaguered home goods retailer’s shares have risen 136.4% in the last five days, 344.5% in the last month and 179.4% over the last three months. By way of comparison, the S&P 500 index has risen 1.6% in the last five days, 8% in the last month and 9% over the last three months. Bed Bath & Beyond’s stock is up 70.4% this year, whereas the S&P 500 index /zigman2/quotes/210599714/realtime SPX -0.21% is down 10.3%.
The rally appears to be driven by Wall Street Bets crowd on Reddit, the same noisy corner of the online forum that turned AMC Entertainment Holdings Inc. /zigman2/quotes/200235402/composite AMC +9.08% and Game Stop Corp. /zigman2/quotes/203755179/composite GME +6.74% into meme stock darlings . “Just drove past a BBBY store and saw some people walking in.. BUY BUY BUY!,” wrote user Ok_Dot8050 on Wednesday. “Wall Street hates us peasants,” commented user PowerWalkingInThe90s.
“King among the meme stocks in August is Bed, Bath and Beyond,” wrote Marco Iachini, senior vice president of Vanda Research, in a note released on Wednesday, noting that Tuesday’s session saw a pair of trading halts due to excessive volatility. “The hand of retail investors is visible once again as both cash purchases and call option volumes have increased more than 70x from their all-time average.”
S3 Partners Research has seen an increase in shares shorted even as Bed Bath & Beyond’s stock price has soared. “This does not mean that there has not been a short squeeze in BBBY, because there have been many short sellers who have trimmed or closed out their positions due to excessive recent mark-to-market losses, it means that there are short sellers coming in to replace those that are exiting their trades,” wrote S3 Partners Managing Director of Predictive Analytics Ihor Dusaniwsky in a note released on Wednesday.
The Bed Bath & Beyond buying spree comes just seven weeks after the ouster of CEO Mark Tritton after less than three years at the company’s helm. Tritton had been recruited by the ailing retailer to replicate the success he had enjoyed as Target Corp.’s /zigman2/quotes/207799045/composite TGT -0.16% chief merchant.
However, a perfect storm of the COVID-19 pandemic, supply chain disruptions, labor shortages, and inflation created what one retail expert describes as a “ quickly insurmountable ” set of challenges for the former Target executive.
Challenges facing ousted Bed Bath & Beyond CEO became ‘quickly insurmountable’: retail expert
Bed Bath & Beyond announced Tritton’s ouster on June 29 alongside disappointing results for its first fiscal quarter.
So why are we seeing this frenzy of trading activity around Bed Bath & Beyond? “This isn’t about rationality, this is about group mobilization powered by Red Bull and excitement that ultimately ends like the Hindenburg,” Eric Schiffer, chief executive and chairman of private equity firm Patriarch Organization, told MarketWatch. This has been underpinned by a powerful bear market rally, a lack of Fed forward guidance, inflation numbers that have excited investors and a better-than-expected earnings season, according to Schiffer.
“That has brought out a craziness that existed in 2021 that will ultimately be crippling and decapitating to many who participate,” he said.
The private equity chief thinks that Bed Bath & Beyond’s management will likely use the stock valuation increase to refinance and improve its balance sheet. “That’s what they should be doing right now as a retailer going into the likelihood of a recessionary storm,” he said.
As for the fundamentals of Bed Bath & Beyond’s business, Schiffer is underwhelmed. “This is a company that had already been looking at the purchase of their casket not long ago and has fairly anemic year-over-year growth projections in the short term,” he said. “This [rally] is less about logic and rationality and more about the tribe’s call to arms.”
Of 18 analysts surveyed by FactSet, one has a buy rating for Bed Bath & Beyond, six have a hold rating, and 11 have an underweight or sell rating.