Some stocks are only good for short-term trading, while others are meant to be buy-and-hold investments. There’s a lot of hype surrounding Bed Bath & Beyond (BBBY) right now, but it’s all about the stock and not the company itself. Therefore, it’s wise to maintain a safe distance and avoid getting caught up in the hype. I am bearish on BBBY stock.
Bed Bath & Beyond operates a chain of stores offering home products, mainly for bedrooms, bathrooms, and kitchens. The onset of COVID-19 made it difficult for retail store chains like Bed Bath & Beyond to deliver shareholder value. A major shift toward e-commerce meant that people shopped primarily on Amazon (AMZN) instead of bricks-and-mortar stores.
Bed Bath & Beyond does have an online presence, but it simply can’t rival Amazon’s. Granted, there’s been a recovery from the COVID-19 pandemic, but in 2022, shoppers are dealing with inflation and concerns about a possible recession. Consequently, Bed Bath & Beyond has to prove to the shareholders that it can deliver results during these challenging times.
These are sensible considerations for prospective long-term traders. Yet, there’s evidently a sizable group of traders who prioritize short squeezes over company fundamentals. If they’re pushing BBBY stock up to unsustainable levels, the retracement could be swift and you don’t want to be in the trade when that happens.
Meme-Stock Traders Have Taken Over BBBY Stock
It would be difficult to prove this, but it appears that meme-stock traders have taken control of BBBY stock. These are mainly traders on Reddit, on a subgroup known as r/WallStreetBets. However, traders on other social media platforms may be involved, as well.
These meme-stock traders have been known to target stocks with certain characteristics for short squeezes. Typically, they’ll look for relatively low-priced stocks, so don’t expect them to pick a stock over $100. Also, they’re usually not interested in blue-chip stocks. Additionally, they’ll choose stocks with high short interest. Reportedly, short interest comprises roughly 34% of Bed Bath & Beyond’s outstanding shares, so the stock definitely checks that box.
Perhaps most importantly, the meme-stock traders tend to seek out stocks with sentimental value. They like underdogs, companies that have struggled. It could be said that a short squeeze of BBBY stock is an expression of the meme-stock traders’ hope for a recovery in the economy. Also, these traders may view the short squeeze as a way to get revenge on short-selling hedge funds.
The influence that meme-stock traders have should never be underestimated. In January of last year, they helped push BBBY stock up from $19 to $35 in just a few weeks. Bed Bath & Beyond was still dealing with the impact of COVID-19, but that wasn’t part of the equation as the short sellers desperately covered their positions.
Is the summer of 2022 a repeat of early 2021? It’s possible, as BBBY stock has run from $4 and change in July to the mid-$20s in August. A lack of company-specific news catalysts to justify this price move tends to confirm that this is, indeed, nothing more than meme-stock mania.
There may be an additional, indirect reason for the rally, as well. Reportedly, GameStop (GME) Chairman, Ryan Cohen, purchased out-of-the-money call options on 1.6 million BBBY stock shares. It’s possible, then, that some traders observed Cohen’s evident confidence in the meme stock and consequently bought up shares of Bed Bath & Beyond.
The Fundamentals Just are Not There for BBBY Stock
Fundamentals-based investors might wince at the thought of buying BBBY stock just because meme-stock traders are buying it, or because Cohen bought call options on BBBY stock. After all, these aren’t sufficient reasons for retail investors to pour their hard-earned money into Bed Bath & Beyond shares unless it’s only for a very short-term trade. Otherwise, they should check the company’s financials, and in the case of Bed Bath & Beyond, the data is problematic.
For one thing, if you’re looking for Bed Bath & Beyond’s trailing 12-month price-to-earnings (P/E) ratio, don’t bother. The company doesn’t have one because it hasn’t been profitable over the past year. Moreover, lacking a P/E ratio makes it difficult to properly measure a company’s fundamentals.
It also doesn’t help that Bed Bath & Beyond is currently being run by an interim CEO, Sue Gove, after the infamous ousting of former Bed Bath & Beyond CEO Mark Tritton. By that point, BBBY stock had collapsed from its meme-stock peak of early 2021.
Also, during the time when Tritton was being removed from his CEO position, Bed Bath & Beyond had just posted dismal first-quarter 2022 fiscal and operational results. To start with, the company’s same-store sales declined 27%. Plus, BBBY reported a quarterly operating loss of $288.2 million. Again, this is definitely not a profitable company – not even close.
In light of these results, Loop Capital Analyst Anthony Chukumba offered a dire warning about Bed Bath & Beyond, “We are looking at a situation in which this company is probably not going to be around… It’s not going to take years. We could be talking about months at this point. We are in the end days.”
Is BBBY Stock a Good Buy Now?
Turning to Wall Street, BBBY stock has a Strong Sell consensus rating based on two Holds and 11 Sells assigned in the past three months. The average Bed Bath & Beyond price target is $3.84, implying 84.8% downside potential.
Conclusion: Should You Consider Bed Bath & Beyond Stock?
Are you a hype-fueled, short-term trader? If so, then you might have reasons to buy Bed Bath & Beyond stock. Even then, though, it’s best to keep your position size very small. On the other hand, if you’re a long-term investor, the company’s fundamentals don’t justify taking a position in Bed Bath & Beyond. So, feel free to watch with amazement from the sidelines as the meme-stock frenzy continues in 2022.
