bed bath beyond (BBBY) – along with one of the original meme stocks GameStop (GME) and AMC entertainment (AMCE) – surged higher in early 2021 as Reddit and social media-fuelled spending frenzy led to huge short squeezes despite lousy corporate fundamentals. Bed Bath & Beyond stocks have surged again in recent weeks. But is Bed Bath & Beyond stock a buy or a sell now?
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BBBY stock has soared this month on renewed interest in the ailing home furnishings retail chain.
Gains accelerated on Tuesday after GameStop chairman Ryan Cohen said in federal filings late Monday that he had put options on more than 1.6 million Bed Bath & Beyond shares with deep-out-of-the-money strike prices of 60 up to 80 owns.
Encouraged by Cohen’s actions, Reddit traders poured money into Bed Bath & Beyond stock, which skyrocketed on Aug. 15, gaining 70% on the day before settling for a 29% gain. Shares rebounded the next day, hitting a five-month high of 30 on the day before closing near session lows, but still up 12% to 23.08.
But then, after trading ended on Aug. 16, Cohen’s RC Ventures filed its intention to sell all 9.45 million shares of its Bed Bath & Beyond stock.
BBBY stock plummeted on this news.
Meme Stock Mania: High risk and high reward
Cohen seemed to bet that BBBY stock could go as high as $80 a share before January 2023, when the call options expire. The stock closed at $16 on Monday. Or by buying these out-of-the-money call options — and disclosing it — Cohen found a way to boost BBBY stock and option prices ahead of the payout.
Cohens RC Ventures currently owns 11.8% of Bed Bath & Beyond, according to FactSet. The activist investor appeared to have taken a particular interest in BBBY earlier this year. In March, he wrote a letter to the CEO of Bed Bath & Beyond expressing his concerns about the company’s current growth strategy.
The rising BBBY stock seemed to offer a high-risk, high-reward situation, which caught the attention of retail traders on Reddit’s WallStreetBets forum, the forerunner of risky meme stock trading.
When a stock jumps that fast, it can be tempting to invest. However, given meme stocks’ volatile track record and mostly lack of earnings, they’re an area to tread carefully, as the case of Bed Bath & Beyond illustrates.
After wiping out tens of billions of dollars in fortunes in a meltdown last year, meme stocks made a comeback in early 2022. The flagship is the video game retailer GameStop.
Most of the intense activity began on March 14th, the day GameStop began rallying. Following this surge, most Roundhill Meme ETF (MEME) stocks posted gains.
GameStop surged 114% from the lows. The struggling theater chain AMC Entertainment also shot up about 90% at the time. Both stocks have shown volatility since then.
Bed Bath & Beyond Stock fundamentals
Based in New Jersey, Bed Bath & Beyond has retail stores across the US and specializes in home furnishings including bedding and bathroom accessories. However, like other retailers, the company has been hit by inflation and supply chain issues.
Bed Bath & Beyond had a string of quarterly losses and was last in profit in the second quarter of 2021.
In the first quarter of 2022, BBBY missed Wall Street forecasts. The company’s earnings per share plummeted from 5 cents a share in the first quarter of 2021 to a loss of 2.83 a share in 2022. Revenue fell 26% to $1.4 billion in the first quarter of this year, its fourth straight year-over-year decline.
Interim CEO Sue Gove told investors in late June that “steep inflation and volatility in buying patterns” had hurt the business.
“But the simple reality is that our first-quarter results didn’t meet our expectations,” Grove said.
Bed Bath & Beyond will report second quarter results in September. Analysts are forecasting a loss of $1.59 per share and $1.5 billion in revenue, according to FactSet. Wall Street forecasts a full-year loss of $6.22 per share on sales of $6.5 billion.
Of course, meme stock investors look past a company’s weak fundamentals. In fact, weak fundamentals and a dubious outlook can be an advantage because it’s a great environment for big short selling.
Bed Bath & Beyond stock analysis
BBBY stock hit a 52-week low of 4.54 on July 27 but is up about 350% since that time
Bed Bath & Beyond shares surged above its 200-day moving average on Aug. 15 and have continued to rise since, according to MarketSmith analysis.
If an investor buys a meme stock despite the huge risks, they should be on the lookout for buy points or key technical levels. BBBY stock arguably offered a super-aggressive entry on Monday as it broke the 200-day moving average.
But after a meme stock moves beyond such areas, the risks are enormous, especially after investors and the business media pay close attention. This is a time to sell a meme stock, or at least take partial profits.
BBBY stock is 61.5% above its 200-day moving average and 219% above its 50-day moving average. The risks are high that stocks will fall back to these levels or below.
BBBY stock ranks seventh in the Retail-Home Furnishings industry group. The stock has a composite rating of 59 out of 99.
It has a Relative Strength Rating of 97, an exclusive IBD Stock Checkup gauge of stock price movement, with a score from 1 to 99. The rating shows how a stock’s performance compares to all other stocks in the IBD over the past 52 weeks -Database claims. The EPS rating of the stock is 7.
Buy BBBY stock?
Bed Bath & Beyond, like most meme stocks, has terrible fundamentals, with a string of losses and rapidly declining earnings. Technically, BBBY stock has been hot but is way off the moving averages and is now getting a lot of media attention. This is a sell signal, not a buy opportunity.
A key catalyst in Bed Bath & Beyond’s recent rise, GameStop’s Ryan Cohen could now be a catalyst for a major pullback.
bottom line: Bed Bath & Beyond shares are not a buy. Any investors who now own BBBY stock should consider selling some or all of their position at current levels.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
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