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Bed Bath & Beyond short squeeze interest on rise despite tanking BBBY stock price

By Mensholong Lepcha

Edited by Jekaterina Drozdovica

09:20, 8 September 2022

Bed Bath & Beyond store entrance at the Great Mall in South San Francisco Bay Area
Bed Bath & Beyond short squeeze interest is on the rise despite tanking BBBY stock – Photo: Shutterstock; Sundry Photography

Bed Bath & Beyond (BBBY) struggled through a wild ride in August 2022. After a massive surge induced by a short squeeze, the stock crashed in an incredible turn of events as investor Ryan Cohen dumped his entire stake in the company.

High short interest and social media-driven frenzy sparked a rally that saw BBBY rise over 500% from the start of the month to a five-month high of $30 by 17 August 2022. Since then BBBY share price has slumped to below $10 in the first week of September, hurt by news of poor quarterly financial performance, job cuts and the closures of 150 stores.

The company has also been rocked by the death of its CFO Gustavo Arnal, who has been named as a defendant alongside Bed Bath & Beyond and Cohen in a class action lawsuit for allegedly orchestrating a pump and dump scheme. 

What does the future hold for Bed Bath & Beyond? Will there be another BBBY short squeeze? Here we take a look at the stock and the factors affecting its share price movement. 

What is a short squeeze?

Stock traders can make a profit from the falling price of a security by short selling. A trader opens a short position by borrowing a company’s shares in anticipation that it will fall in price. They then sell the borrowed shares and buy them back after the share price has fallen.

Short selling does not always go according to plan. If the market goes against the short seller’s position, a heavily shorted stock may rise and force short sellers to cut their losses and exit their positions.

Short sellers rushing for the exit have to buy shares from the market, which can result in a further rise in the price. Rising asset prices attract new buyers. This combination of new buyers and panicked short sellers boosts demand, resulting in a short squeeze.

About Bed Bath & Beyond

Bed Bath & Beyond is an omni-channel retailer that sells home, baby, beauty and wellness products. Its brand portfolio include Bed Bath & Beyond, buybuy BABY, Harmon and an online interior design platform called Decorist.

The company underwent a restructuring in 2019 when it sold its non-core assets in order to strengthen its financial position.

2020 was a difficult year for Bed Bath & Beyond as Covid-19 restrictions forced the company to close nearly all of its retail stores across the US and Canada at one point in time.

The company posted a net loss of over $559m in fiscal year 2021, compared to a net loss of over $15m in fiscal 2020. Bed Bath & Beyond has built up a long-term debt of over $1bn, as of end-May 2022.

BBBY short interest: Bed Bath & Beyond posts best weekly gain ever

Bed Bath & Beyond investors experienced a rollercoaster ride in August as the stock saw several over 20% intraday gains sparked by BBBY stock short squeezes.

Short interest data can be a useful tool when studying Bed Bath & Beyond short squeezes that have occurred very frequently in 2022. BBBY short interest data on MarketBeat showed the conditions for a BBBY squeeze have been building since the start of the year. 

The percentage of float shorted for BBBY stock stood at about 26.4% on 31 December 2021. By the end of July 2022, the percentage of BBBY float shorted rose to a high of 47.2%.

On 1 August, BBBY extended gains to four straight days and surged about 14% to close at $5.77. On 5 August, the stock saw another BBBY short squeeze with scrip closing the day 32% higher.

After BBBY posted its best weekly gain ever of over 62% in the first week of August 2022, a Bed Bath & Beyond short squeeze became a hot topic of discussion on social media platforms such as Reddit’s WallStreetBets.

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Bed Bath & Beyond stock price, 2017 – 2022

A US SEC filing published on 15 August showed GameStop chairman and a major BBBY shareholder Ryan Cohen held 7.78 million BBBY shares and call options expiring January 2023 on 1.67 million shares with a strike price of $60 to $80.

The stock surged 29% a day later and hit an over five-month high of $30 on 17 August. 

However, a separate US SEC filing published on 18 August revealed that Cohen dumped his entire stake and BBBY call options on 16 August and 17 August. On 19 August, BBBY extended three consecutive days of losses to plunge over 40% to close at $11.

BBBY’s downtrend has extended into September despite the stock seeing a surge of about 25% on 29 August 2022. BBBY closed at $7.04 on 6 September, representing a loss of about 76% for any investor who bought the stock at its August peak of $30.

Stockholder rights law firm Bragar Eagel & Squire filed a class action lawsuit against Bed Bath & Beyond on 24 August, accusing company insiders of profiting at least $110m from insider sales on 16 August and 17 August.

Separately, Pengcheng Si filed a class action suit against Bed Bath & Beyond, JP Morgan Securities, RC Ventures, Ryan Cohen and Arnal Gustavo accusing them of a pump and dump scheme.

BBBY short squeeze: Important company news 

Here are some important Bed Bath & Beyond news that could influence its stock price and Bed Bath & Beyond short squeeze in the future:

  • Bed Bath & Beyond posted about a 15% year-on-year (yoy) fall in net sales in the full year ended 26 February 2022. Full-year net loss widened to $559.6m from $150m a year ago.

  • Long-term debt of the company stood at $1.379bn on 28 May this year, compared to $1.179bn three months ago. Cash and cash equivalents came in $107.5m on 28 May.

  • On 29 June, Bed Bath & Beyond announced Sue Gove as its interim CEO.

  • On 1 September, the company said it secured over $500m in new debt to add to its $1.13bn asset-backed revolving credit facility and $375m "first-in-last-out" facility. 

  • The company announced cost reduction plans, which include job cuts and store closures, to reduce selling, general and administrative expenses by about $250m in fiscal 2022.

  • Preliminary results showed comparable sales declined by about 26% in the second quarter of fiscal 2022 versus a year ago. Full second-quarter financial results are expected to be published on 29 September 2022.

Outlook: Analyst views on BBBY

Equity analysts at investment bank Jefferies said BBBY’s enhanced liquidity via its expanded debt facility “will shore up cash to alleviate supplier concerns and buy time to enact the re-positioning plan”.

Jefferies rated BBY stock a ‘hold’ with a price target of $9 in its research note published on 31 August 2022.

The firm’s analysts added that the search for a new CEO, the closure of 150 stores, liquidation of three owned brands, a direct-to-consumer brand strategy and the 2022 fall supplier event could be catalysts for Bed Bath & Beyond.

As of 7 September 2022, analyst ratings compiled by MarketBeat showed 13 out of 14 analysts rated BBBY stock ‘sell’, one ‘buy’ and none a ‘buy’. The consensus price target for BBBY stock was $6.50, representing a downside of over 7% on BBBY’s last close of $7.04 on 6 September 2022.

Elsewhere, an algorithmic-based BBBY price prediction for 2022 from Wallet Investor saw BBBY closing the year at $8.29. Its BBBY forecast for 2023 expected the stock to close the first quarter of 2023 at about $10.

Note that analysts' views on the outlook for BBBY short squeezes and stock price can be wrong. Forecasts shouldn’t be used as a substitute for your own research. 

Always conduct your own due diligence and remember that your decision to trade or invest should depend on your risk tolerance, expertise in the market, portfolio size and goals. Never trade money that you cannot afford to lose.

FAQs

Will BBBY squeeze?

There are many factors at play. Company reports on its financial health, CEO search, restructuring, debt financing  and trading updates from the company insiders could shape BBBY short interest.

How high can BBBY short squeeze go?

It is impossible to predict the market. Historical data showed the BBBY posted its best weekly gain ever in the first week of August 2022 helped by BBBY short squeeze. Note that past performance does not guarantee future returns.

Should I invest in BBBY?

You should conduct your own research when deciding to invest in BBBY. Investing in BBBY should be a decision based on your personal circumstances such as risk tolerance, expertise in the market, portfolio size and goals. Always conduct your own due diligence before trading, looking at fundamental and technical analysis, latest news and market commentary. Keep in mind that past performance does not guarantee future returns. And never invest money that you cannot afford to lose.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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