Topline
Shares of Bed Bath & Beyond, a favorite with the meme stock crowd, plunged after analysts warned that the retailer is losing a “key support leg” in the form of activist investor Ryan Cohen, who completed a sale of his more than 10% stake in the retailer late on Thursday.
Analysts warn that after a recent meme stock rally, Bed Bath & Beyond’s valuation has become further … [+]
Key Facts
Bed Bath & Beyond’s stock fell 20% on Thursday, reversing course after rallying roughly 300% so far this month thanks to an army of retail investors on forums like Reddit’s WallStreetBets who have been buying up shares.
Investors dumped shares in after-hours trading—with the stock falling another 23%—after news that GameStop chairman and activist investor Ryan Cohen completed a sale of his nearly 10 million shares and options in Bed Bath & Beyond, worth roughly $150 million, according to regulatory filings.
That news of a looming sale prompted Wedbush analyst Seth Basham earlier in the day to downgrade Bed Bath & Beyond shares to a “sell” rating on Thursday, echoing other recent analyst warnings about the stock as he pointed out that the retailer’s market valuation is “disconnected” from fundamentals.
After disclosing a nearly 10% stake in the company back in March, Cohen pushed for the company to turn around its struggling business and sell its Buy Buy Baby chain, eventually reaching a deal to add several board members.
His exit removes a “key support leg” for Bed Bath & Beyond, which faces “pressing” issues like high cash burn and the need for further financing, according to Basham, who warns that the stock’s elevated valuation only creates more downside risk for shareholders.
The analyst maintained a $5 per share price target for the stock, implying over 70% downside from current price levels of around $17 per share.
Crucial Quote
Bed Bath & Beyond finds itself in an “unenviable position as it faces steep market share losses, an overabundance of inventory and dwindling cash reserves,” the Wedbush analyst wrote. “Quickly fixing these issues will be challenging, particularly given the soft demand environment, continued rapid sales declines and a weak balance sheet, adding significant risk to the company’s prospects.”
Key Background
Before Thursday, Bed Bath & Beyond’s stock had skyrocketed roughly 300% amid enthusiasm from retail traders on the likes of Reddit’s WallStreetBets chat room. The gains come even as most Wall Street analysts maintain a “sell” rating on the stock, largely skeptical about the retailer’s ability to turn around its business and warning of “unrealistic valuations.” On Tuesday, the stock was halted several times for volatility, at one point rising as much as 70% on news that Cohen had purchased call options on roughly 1.6 million shares, ranging between $60 and $80. While Cohen’s purchase earlier this week was viewed as a vote of confidence by investors, there is a strong likelihood that the latest disclosure about him selling his stake has undoubtedly tempered enthusiasm around the stock.
Further Reading
Bed Bath & Beyond Jumps 29% As Meme-Stock Traders Snap Up Shares Despite Analyst Warnings (Forbes)
Bed Bath & Beyond Surges Nearly 40% As Retail Traders Pile Back Into Meme Stocks (Forbes)
Bed Bath & Beyond Stock Jumps Over 20% After New CEO Buys 50,000 Shares (Forbes)
Source: https://www.forbes.com/sites/sergeiklebnikov/2022/08/18/bed-bath–beyond-falls-over-20-after-investor-ryan-cohen-sells-his-entire-stake/