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BBBY Stock: Meme Season Has Begun

Thanks to massive short-selling activity, Bed Bath & Beyond is trading like a meme stock once again.
  • Shares of Bed Bath & Beyond are experiencing another meme rally, up more than 60% in the last two days.
  • The stock is one of the most shorted stocks on the Nasdaq making it ripe for a short-squeeze play.
  • Bed Bath & Beyond is among the most popular stocks on Reddit's investor forums.
Figure 1: BBBY Stock: Meme Season Has Begun

Figure 1: BBBY Stock: Meme Season Has Begun

(Read more from the Wall Street Memes: AMC Stock’s Q2 Earnings: The "Pounce" Actually Happened)

How Is Bed Bath & Beyond a Meme Stock?

Meme stocks have huge appeal among retail investors on social media platforms such as Reddit. Their price increases are usually unrelated to the fundamentals of the underlying company's business,

Since early 2021, Bed Bath & Beyond  (BBBY) - Get Bed Bath & Beyond Inc. Report has been considered a meme stock, along with GameStop  (GME) - Get GameStop Corporation Report and AMC Entertainment  (AMC) - Get AMC Entertainment Holdings Inc. Class A Report. In the past year-and-a-half, BBBY has frequently been among the most-discussed tickers on Reddit forums.

This year, BBBY skyrocketed in March and gained even more meme-stock cachet after GameStop Chairman Ryan Cohen bought about 10% of the company's total shares.

More recently, during the August 5 trading session, Bed Bath & Beyond shares jumped more than 32%, apparently unrelated to any specific news about the company's business. In the following trading session, on August 8, Bed Bath shares shot up almost 40%.

The stock's popularity on Reddit forums such as r/wallstreetbets has also skyrocketed. BBBY was the most popular ticker at the beginning of this week:

Figure 2: Trending stocks on Reddit on August 9.

Figure 2: Trending stocks on Reddit on August 9.

Why Is BBBY Being Shorted?

Heavily shorted stocks can pose a danger to short sellers, because volatility and speculation often lead to high trading volumes that generate short squeezes. And that is exactly what has happened with BBBY in the last few trading days.

Currently, about 28.5 million BBBY shares — out of a float of 69.4 million — are being shorted. That equals short interest of 40%. And borrow rates are hovering around 5%, five times higher than the average in the first half of the year.

It's not difficult to understand why short sellers are betting against the company. Bed Bath & Beyond's fundamentals have been getting worse with each quarter.

The business has been hit hard by problems in its supply chain, inventory and cash optimization, and cost structure. And the company's turnaround plan — first implemented by CEO Mark Tritton — has failed to meet expectations. This led to his removal from the top spot at the end of June.

To make matters worse, the company is starting to have difficulty paying its obligations. Bed Bath & Beyond reported cash and cash equivalents of $107 million last quarter but burned through about $380 million in cash.

Recently, Freeman Capital revealed a passive investment in Bed Bath & Beyond that constitutes about 6.21% of BBBY shares. The firm is pushing for debt realignment to reduce its liabilities.

Will BBBY Skyrocket Again?

The similarities between Bed Bath & Beyond and GameStop are not insignificant. Both companies are under the strong influence of activist investor Ryan Cohen, who sees opportunity in BBBY and GME.

And even though Bed Bath & Beyond, GameStop, and other so-called meme stocks can be influenced by business fundamentals, their main driver is momentum from retail investors.

Thanks to Bed Bath & Beyond's increased meme interest, we may see some wild GameStop-like activity play out. Certainly, its high short interest could help trigger further short squeezes.

So any catalyst that positively affects the company's business — such as a BuyBuy Baby spinoff — could send shares skyrocketing again.

(Disclaimers: this is not investment advice. The author may be long one or more stocks mentioned in this report. Also, the article may contain affiliate links. These partnerships do not influence editorial content. Thanks for supporting Wall Street Memes)