The Latest On Their Liquidity Lifeline

Key Takeaways

• Bed Bath & Beyond (BBBY) is in dire financial straits. If funding comes through, they could have enough money to get by in the near future, but the long-term viability of the company is up in the air.
• Meme stock investors tend to gamify investing for short-term profits and to thwart what they view as an unworthy ruling class of investors.
• A press release ahead of their investor presentation today outlined store closings, 20% staff reduction, and an issuance of new stock. They have secured a lifeline from J.P. Morgan and Sixth Street Partners.

Bed Bath & Beyond is not in good shape, but you wouldn’t have known it if you had looked at BBBY in mid-August 2022. How did we get here? This month, the stock rallied and sank, largely at the hands of meme stock investors.

The disconnect between stock price and company valuation can be baffling, but this kind of disjointed reality might be something we see more often if meme stock investing continues to be more than a passing phase. Let’s examine why and how BBBY’s August fluctuations came to be.

What’s Going on with BBBY Stock?

BBBY had an erratic month. It started at $5.77 on August 1, then more than doubled to $11.41 a week later. Prices plateaued for three days, hovering between $9.79 and $10.63, before skyrocketing upwards in a meme stock rally through August 17. At its peak, BBBY shares had nearly quadrupled in value at $23.08.

This mid-month rally ended as quickly as it began, with prices dipping down to $8.78 by August 23. Since then, they have been creeping up in a less dramatic fashion to $13.35 as of Monday, August 29.

What’s Driving BBBY Stock Fluctuations

Ryan Cohen has largely driven the erratic swings of BBBY over the past month. Cohen, the co-founder of Chewy, is a venture capitalist who has made a new name for himself investing in struggling companies he believes are undervalued. His investments in GameStop early on in the pandemic spurred meme stock investors, like those in the Wall Street Bets subreddit, to drive up the value of the stock irrespective of actual financial viability.

Meme stock investors tend to gamify investing for short-term profits and thwart what they view as an unworthy ruling class of investors. This is the opposite of what savvy, long-term investors do. Long-term investors want to see that a company is financially viable over a long period of time. Meme stock investors are about the thrill of the quick chase and influence, an interesting new phenomenon to say the least.

In 2021 Bed Bath & Beyond experienced a 29% drop in sales compared to pre-pandemic levels. Its latest (and only) earnings report to date for 2022 reveals an additional 25% drop in year-over-year sales for Q1.

Some of the reasons Bed Bath & Beyond is struggling include:

• People aren’t buying as many home goods as they did loading up in 2020.
• Americans’ discretionary income has decreased in the past 18 months.
• The housing market is cooling, which means not as many people are in need of new home furnishings.

Cohen stirred the pot with the BBBY board some months back, announcing he had acquired a large stake in the company while admonishing its current strategy and financial standing. Despite poor fundamentals and even worse performance, there was a meme investor rally around BBBY.

It seems that Redditors had hoped to create another short squeeze, as they had with GameStop in January. A short squeeze happens when there’s not enough available stock to cover the open short positions, so hopeful short-sellers can’t cash out. If you are interested in short squeeze practices, look into an AI-based Short Squeeze Kit, which aggregates both historical and technical financial information on thousands of equities, including sentiment data from financial news reporting.

Cohen did an abrupt about-face, deciding to sell all of his shares in BBBY between August 16 and 17, causing the stock to tumble. When news of the sale broke on August 18, prices started plummeting, going from $23.08 all the way down to $8.08 by August 23, some six days later. Many of the meme investors who had helped him propel the share price and ensured his profit at the time of sale (purported to be about $68.1 million) felt betrayed, including many of his most ardent supporters from the Wall Street Bets subreddit.

On August 19, it became public knowledge that vendors were refusing to fulfill Bed Bath & Beyond orders due to nonpayment. Currently, the company is in arrears with nearly all its vendors, and some accounts are over 90 days past due, according to the independent credit firm Pulse Ratings.

After Cohen’s departure, the company explored filing bankruptcy and began seriously pursuing another route to financial viability: mortgaging its subsidiary buybuy BABY to cover its significant cash flow problem. This potential financing created a comparatively modest share price increase for BBBY, up to $13.35 as of Monday, August 29.

Potential Mortgaging of buybuy BABY

Bed Bath & Beyond isn’t doing well, but its subsidiary, buybuy BABY, has a roughly estimated valuation of $1 billion. Bed Bath & Beyond is attempting to leverage this value to secure a line of credit for its main brand.

The potentially interested party is Sixth Street Partners, and the amount being discussed is $400 million according to Yahoo. It was announced this morning that the deal went through along with backing from J.P. Morgan.

Is BBBY Stock a Good Buy?

Regardless of what BBBY has done throughout the month of August, its revenue struggles aren’t new. BBBY has underperformed the S&P 500 and the S&P Retail Select Industry Index over the course of the past ten years. Even before the pandemic, stock prices had dropped to about $4, down from around $80 in 2014.

Recent analysis from the Wall Street Journal, estimated that Bed Bath & Beyond would need at least $375 million to have enough cash on hand to pay off enough of its debts and to stay operational. The loan from Sixth Street Partners and J.P. Morgan came in at $500 million with conditions. How the company will repay the loan and restore itself to a profitable venture remains fuzzy, though the press release cited a “straight-forward, back-to-basics philosophy.” With tumbling sales in an inflationary environment, it is unclear if the company can recover.

The volatility that meme stock investors bring to the table makes the future of BBBY unpredictable, even if the financial viability of the company itself looks fairly bleak. It is possible the stock could rally again, depending on what happens in the Reddit threads. While financial reports won’t necessarily help you predict trends in the meme stock world, there are sites that can help you understand current meme stock trends as they’re being discussed.

Even with access to in-the-moment data on the Reddit threads, keeping on top of stock news in such an unpredictable situation can be difficult, especially if you’re not investing as your full-time job. Luckily, there are Investment Kits that can help. You can use these kits to set your specific investing goals, and they’ll automatically help you adjust for volatility in the marketplace to reach them, using AI technology.

BBBY Bottom Line

Bed Bath & Beyond is in dire financial straits. The chaos of BBBY pricing over the past month can be attributed largely to Ryan Cohen’s influence on meme investors, who may or may not continue to stick by him after he profited off of this most recent rally. Will the more stone-handed among them stand by BBBY might be a better question now. To say that there are more sound investments for a value-driven investor seems like an understatement.

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