Bed Bath & Beyond BBBY has clearly been a victim of the retail apocalypse, with obviously deteriorated brick-and-mortar operations that have been further exacerbated by inflationary pressures reversing margins.

The company’s latest earnings report outlines the most alarming quarterly results for the antiques retailer yet, with deeply negative EPS (the worst since the peak of pandemic shutdowns) missing estimates by a mile. positive from analysts.

Bed Bath & Beyond’s February quarter earnings release in mid-April ripped off most of the remaining bullish narratives on the archaic name. Bed Bath & Beyond’s failure (to date) to effectively execute a digitized omnichannel customer experience, having largely missed the tidal wave of digital sales adaptation over the past 2 years, is its undoing.

Analysts increasingly bearish on this volatile r/WallStreetBets-powered “stock meme” as earnings estimates drop deep into negative territory for years to come, dropping BBBY to Zacks rank #5 (strong sell) .

The Big Short Squeeze

BBBY’s excessively short interest (nearly 100% floating stock) coupled with its nostalgic qualities (particularly appealing to millennials) may be the only reason this outdated brick-and-mortar dealer was able to stay away bankruptcy court (higher market value increased his access to credit facilities).

These unique characteristics led ar/WallStreetBets (WSB) to press short in BBBY when its “meme stock” status was established last January, propelling BBBY up 200% in the first weeks of 2021.

Nevertheless, BBBY failed to take advantage of the opportunity to raise capital offered to them in the public markets on a silver platter (a stock price greater than 3 times its true intrinsic value). In fact, the company continued with its previously planned share buyback program as its shares sat at clearly overvalued levels, underscoring the concerning level of complacency at the helm of Bed Bath & Beyond.

BBBY’s WSB euphoria, despite some fleeting meme-fueled rallies, has lost its luster as a gambling/trading tool and its stock price is rapidly declining alongside its fundamental backdrop.

Deteriorating fundamentals and valuation

Bed Bath & Beyond is in the process of bolstering its storefront operations by closing 20% ​​of its physical stores while working to build out its digital offering (much more of a pandemic-forced reactive game than a proactive game).

The company’s cash reserves continued to fall, with balance liquidity reduced by 75%, and its credit rating rapidly plummeting.

Bankruptcy looks like a real possibility if the company’s first-year management team (nearly all C-suite positions have been replaced in the past two years) aren’t able to materially alter the narrative. consumers on this business, liquidation would be inevitable.

Bed Bath & Beyond can no longer be valued on a price-earnings basis following its latest earnings reports, which catalyzed a consensus shift in EPS estimates into negative territory for the foreseeable future (next two years), which which changes the way many analysts value the stock.

The company’s forecast value to EBITDA or EV/EBITDA (market value of stocks and outstanding bonds/debts less cash divided by expected earnings before interest, depreciation and amortization) has soared to more than 17 x compared to its median 4 x over the past 5 years.

With low single-digit growth prospects for the coming years (potentially even negative), there’s no way to justify ‘value’ at this market multiple, although BBBY has lost over 50% of its Q2 value so far.

6 out of 12 analysts are calling BBBY a sell today with some core price targets hovering significantly below $10 per share. I would stay away from this toxic equity as the odds of getting burned, even after its recent capitulation, remain high.

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