Bed Bath & Beyond Stock: Why We Might See Another Short Press
- Bed Bath & Beyond was an obvious short-selling target due to deteriorating trading fundamentals.
- However, shorting a stock involves many risks. This is even truer for meme actions.
- With Bed Bath & Beyond’s growing popularity among retail investors, the game may not be over yet for BBBY.
(Learn more about Wall Street memes: GameStop is now focused on profitability. Here is the plan)
Why do short sellers target BBBY?
At first glance, Bed bath and beyond (BBBY) – Get the Bed Bath & Beyond Inc. report. may seem like a short piece without the fuss. There are several reasons for this. Among them:
- Cumulative negative gains over the past few years; earnings yield of -72%
- Seven missed gains in the last 10 quarters
- Return on invested capital (ROIC) of -26%
- Liquidity down sharply to worst level in at least 10 years
- Cash burn of around half a billion dollars in the first quarter
- Total debt to equity at the highest level in company history
It’s no wonder Bed Bath & Beyond’s short float is nearly 40%.
Of course, there’s another big reason why BBBY is so attractive to short sellers: Bed Bath & Beyond has no clear prospect of near-term profitability.
The company reported a decline in sales growth of 25% last year, compared to an industry high of 61%.
Next year, Bed Bath & Beyond sales are expected to grow 1.7%, better than the industry-wide expectation of a 0.6% decline. However, this is not enough.
What are the risks of shorting a stock?
Short selling involves risks such as unlimited losses, which do not exist in long positions where the maximum downside is the cost of your initial investment. If you open a short position in a stock that continues to rise, you will need to cover the difference to replace the borrowed stock.
Additionally, borrowing costs may vary depending on the demand for short positions in a particular security. It is not uncommon for the borrowing fee rate of a short position to jump from 20% to 40% or even 80% overnight.
Finally, there is the risk of margin call. This is the risk you face when the value of the collateral in your margin account falls below the minimum equity requirement, which is typically 35% of the value of the shares borrowed. Your brokerage may ask you to immediately deposit more cash or securities to cover the loss.
In summary, short selling is already a risky practice in itself, given the risk of unlimited losses. But opening short positions in meme stocks can be even more risky.
The Rise and Fall of Bed Bath & Beyond Stock
Meme stocks are notorious for defying investment logic.
Retail investors most often invest in meme stocks, not necessarily because they like the fundamentals of the company, but because they are looking for gains by forcing short sellers to cover their positions, which causes squeezes. discovered.
In January 2021, several meme stocks skyrocketed – the most famous GameStop (EMG) – Get the GameStop Corporation report. This caused considerable losses to hedge fund giants, such as Melvin Capital, which were selling the shares short.
Bed Bath & Beyond has also been a meme stock since January 2021, when retail investors drove BBBY’s price up around 100% in a month.
In the early months of this year, meme stock investors once again drove shares of Bed Bath & Beyond higher after news broke that GameStop Chairman Ryan Cohen had purchased nearly 10% of the company’s shares. .
Bed Bath & Beyond shares went viral on major Reddit forums such as r/wallstreetbets and saw impressive rallies. But in August, news that Cohen was selling his entire stake brought the BBBY meme rally to a halt.
It’s still not over for Bed Bath & Beyond
In recent weeks, heightened fears in stock markets have contributed to a general decline in investor sentiment.
Jim Cramer, a nemesis of meme investors, recently commented that the bearish “narrative” on Bed Bath & Beyond hasn’t changed:
This suggests that the game may not yet be over for Bed Bath & Beyond meme investors. The retailer’s stock is always popular on Reddit’s stock forums. And its Google search volume exceeds that of other popular stocks among retail investors, such as GameStop, AMC Entertainment (CMA) – Get AMC Entertainment Holdings Inc. Class A Report.and You’re here (TSLA) – Get the report from Tesla Inc..
The large amount of short interest on the stock should motivate traders and retail investors to stay in the game by exploiting a short squeeze.
With this volatile stock, any news or speculation about the company tends to trigger a big move in Bed Bath & Beyond’s stock price.
This week, we’re likely to see that in motion, as the company is set to unveil its turnaround plan on August 31. Already, the news has generated a 20% rally.
(Disclaimer: This is not investment advice. The author may own one or more stocks mentioned in this report. Additionally, the article may contain affiliate links These partnerships do not influence editorial content. Thank you for supporting Wall Street Memes)