Bed bath and beyond (BBBY) — one of the original meme shares along with GameStop (GME) i AMC Entertainment (AMC) – rallied in early 2021 as a buying frenzy fueled by Reddit and social media spurred tremendous shorting despite lousy company fundamentals. Bed Bath & Beyond’s stock has risen again in recent weeks. But is Bed Bath & Beyond stock now a buy or a sell?
BBBY shares have soared this month amid revived interest in the struggling home furnishings retailer.
Gains accelerated Tuesday after GameStop Chairman Ryan Cohen disclosed in federal filings late Monday that he owns call options on more than 1.6 million shares of Bed Bath & Beyond, with about out-of-the-money strike prices from 60 to 80.
Buoyed by Cohen’s actions, Reddit traders sank money into Bed Bath & Beyond stock and it soared on Aug. 15, up 70% intraday before settling for a 29% gain. Shares rallied again the next day, hitting a five-month high of 30 intraday before closing near session lows, but still rose 12% to 23.08.
But then, after market trading ended on Aug. 16, Cohen’s RC Ventures announced its intention to sell its 9.45 million shares of Bed Bath & Beyond stock.
Shares of BBBY fell more than 20% on Thursday.
Meme Stock Mania: High Risk, High Reward
Cohen appeared to bet that BBBY stock can rise to $80 a share before January 2023, when the call options expire. Shares closed Monday at $16. Or, by buying these out-of-the-money call options, and revealing it, Cohen found a way to drive up BBBY’s stock and option prices before cashing out.
Cohen’s RC Ventures currently owns 11.8% of Bed Bath & Beyond, according to FactSet. The activist investor appeared to have taken a specific interest in BBBY earlier this year. In March, he wrote a letter to the CEO of Bed Bath & Beyond expressing concern about the current growth strategy.
The surge in BBBY stock appeared to offer a high-risk, high-reward situation, which caught the attention of retail traders on Reddit’s WallStreetBets forum, the progenitor of risky meme trading.
When a stock jumps so quickly, it can be tempting to invest. However, given the volatile track record of meme stocks and especially the lack of profits, it makes them an area to tread carefully, as evidenced by the case of Bed Bath & Beyond.
After shredding tens of billions of dollars of wealth in a meltdown last year, meme stocks are starting to bounce back in early 2022. The posterchild is video game retailer GameStop.
Most of the heavy activity began on March 14th, the day GameStop began meeting. After this increase, most of the shares in the Roundhill Meme ETF (MEME) saw gains.
GameStop rose 114% from the lows. Struggling theater chain AMC Entertainment was also up about 90% at the time. Both stocks have shown volatility since then.
Bed bath basics and beyond in stock
New Jersey-based Bed Bath & Beyond has retail stores across the United States and specializes in home furnishings, including bedding and bathroom accessories. However, like other retailers, the company has been affected by inflation and supply chain issues.
Bed Bath & Beyond has had a string of quarterly losses and last turned a profit in the second quarter of 2021.
In the first quarter of 2022, BBBY had no Wall Street predictions. The company’s EPS plummeted from 5 cents per share in the first quarter of 2021 to a loss of 2.83 per share in 2022. Sales fell 26% to $1.4 billion in the first quarter of this year, the fourth consecutive year-on-year drop.
Acting chief executive Sue Gove told investors at the end of June that “high inflation and fluctuations in buying patterns” had hurt the business.
“The simple reality, however, is that our first quarter results are not up to our expectations,” Grove said.
Bed Bath & Beyond is due to report second-quarter results in September. Analysts were predicting a loss of $1.59 per share on revenue of $1.5 billion, according to FactSet. Wall Street is forecasting a loss of $6.22 per share for the full fiscal year on sales of $6.5 billion.
Of course, meme investors look beyond a company’s weak fundamentals. In fact, weak fundamentals and a dodgy outlook can be an advantage, because this is a great environment for big short selling.
Rally won’t do it; “Meme Reversion” by BBBY
Bed bath and stock analysis beyond
Shares of BBBY hit a 52-week low of 4.54 on July 27, but are now up about 350% since that point.
Shares of Bed Bath & Beyond broke above its 200-day line on Aug. 15 and have continued to rise since then, according to MarketSmith analysis
If an investor is going to buy meme stocks, despite the enormous risks, they should look for buy points or key technical levels. BBBY stock offered a super aggressive entry on Monday as it cleared the 200-day line.
But after meme stocks move beyond these areas, the risks are huge, especially after investors and business media start paying close attention. It’s time to sell a stock of memes, or at least make a partial profit.
Shares of BBBY are 61.5% above their 200-day line and 219% above their 50-day moving average. The risks are high that the stock will fall back to these levels or below.
BBBY shares are ranked seventh Retail-Furniture for the home industrial group The stock has a composite rating of 59 out of 99.
It has a relative strength rating of 97, an exclusive one IBD Stock Review stock price movement indicator with a score of 1 to 99. The rating shows how a stock’s performance over the past 52 weeks holds up against all other stocks in the IBD database. The EPS rating of the stock is 7.
A BBBY stock purchase?
Bed Bath & Beyond, like most meme stocks, has terrible fundamentals, with a string of losses and rapidly declining revenue. Technically, BBBY stock has been hot, but it has extended well above the moving averages and is now getting a lot of media attention. This is a sell signal, not a buying opportunity.
A key catalyst for Bed Bath & Beyond’s recent rise, GameStop’s Ryan Cohen could now be a catalyst for a big pullback.
Bottom line: Bed Bath & Beyond stock is not a buy. Any investor holding shares of BBBY should now consider selling some or all of their position at current levels.
Please follow Kit Norton on Twitter @KitNorton for more coverage.
YOU MIGHT LIKE IT TOO
What is CAN SLIM? If you want to find winning stocks, know better
The best funds buy into the #1 sector leader near a breakout with 364% growth.
Did you miss BBBY? Analysts say the 10 “meme stocks” are the next gold mines