Bed Bath & Beyond: Will the Short Squeeze Fade?

Bed Bath & Beyond (BBBY), a home and lifestyle retailer, made great headway during the pandemic. It was a way to improve the space shoppers would spend most of their time, their home. It also enjoyed status as a “meme stock” supported by social media communities.

Bed Bath & Beyond stock blasted up earlier this week, thanks to new revelations about the company’s ownership. With new plans potentially on the horizon, there’s reason to be enthusiastic, but the recent spike in share prices makes me bearish for now.

Bed Bath & Beyond has toppled mightily from its highs, but a recovery may be in progress. Back in January 2021, the company hit its peak for the year, at $53.90. That toppled to close at $16.18 last Friday. The stock nearly doubled at one point early this week but has now pulled back to just under $21.

The news is a surprise revelation that GameStop (GME) CEO Ryan Cohen’s investment company, RC Ventures, owns almost 10% of Bed Bath & Beyond. Cohen issued a letter detailing points about the company, as well as possible issues on which to move forward. Cohen chided executives for taking “excessive compensation” during slower periods, as well as spinning off its BuyBuy Baby line.

Wall Street’s Take

Turning to Wall Street, Bed Bath & Beyond has a Moderate Sell consensus rating. That’s based on one Buy, six Holds, and six Sells assigned in the past three months. The average Bed Bath & Beyond price target of $14.41 implies 31% downside potential.

Analyst price targets range from a low of $9.50 per share to a high of $20 per share.

The Numbers Aren’t Backing It

Here’s the problem in a nutshell. Back in June, when Bed Bath & Beyond shares spiked to $44.19, the company released its first-quarter earnings about a month later.

Though the company slid after that spike, it was still trading over $30 per share when the fiscal first-quarter results emerged. Earnings missed, coming in at $0.05 against $0.08 projected, and revenue beat expectations, coming in at $1.95 billion against $1.87 billion expected.

After that, the company started a slide that lasted until late October. A recovery started but didn’t take hold and brought us to the $16 level. Now, the shares have spiked once more on Ryan Cohen’s involvement.

Bed Bath & Beyond’s fiscal third-quarter results, meanwhile, are actually worse. The company posted a $0.25 loss against a break-even expectation. It suffered on revenue as well, posting $1.88 billion against $1.95 billion expected. If history repeats like it tends to, this latest spike won’t last long either. In fact, BBBY has already given up many of its recent gains.

Hedge Funds Up, Headwinds Growing

Of course, not everyone feels this way; both hedge funds and insiders have bought in heavily over the last three months. Hedge funds increased activity by over 169 million shares last quarter. TipRanks’ 13-F tracker shows a resurgence in trading from the lows in July 2021.

Insiders bought over $656k in shares in the last three months. Yet, it’s easy to notice that Bed Bath & Beyond is trading well outside expectations right now. The most optimistic price target stops at $20. With Bed Bath & Beyond still above that target, it suggests a bit too much optimism in play.

Worse, Bed Bath & Beyond has plenty of secular headwinds to face. A growing supply crunch is likely to limit its stock. It already ran into that problem in the first quarter, and that’s not likely to improve. Worse, rising fuel prices and ongoing inflationary pressures on most basic staples are going to hit discretionary income.

Retailers, in general, are likely to be hit by that pressure. Bed Bath & Beyond will likely be no exception. However, Bed Bath & Beyond’s dividend history is fairly solid, a point that may endear it to income investors. The elevated prices to get in on that solid dividend, however, may not.

Concluding Views

Certainly, RC Ventures’ suggested changes for Bed Bath & Beyond would be big steps. Selling the company to private equity and spinning off a whole division are major moves. Yet, these aren’t points that suggest the company will be more profitable in the future.

With Bed Bath & Beyond shares currently inflated, it doesn’t look like a good buy. It certainly would have been a week ago, given what’s happened. At those prices, around $16 a share or so, buying in might have been worthwhile.

For now, however, much of those gains look to be priced in already. That keeps me bearish on this retailer, who’s likely to feel the effect of all those headwinds hitting it going forward.

Download the TipRanks mobile app now

​To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.