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Bed Bath & Beyond Stock: More Short Squeezing Ahead

GameStop's Chair and largest shareholder Ryan Cohen recently acquired a sizable chunk of BBBY. Now, short sellers are threatened as retail investors look to squeeze them out.

There’s been quite a bit of buzz surrounding retail home goods company Bed Bath & Beyond  (BBBY) - Get Free Report lately. You can thank GameStop Chair Ryan Cohen for that - he recently became one of the company's top five shareholders.

Suffering from high investor skepticism since before the pandemic, BBBY shares have a very elevated short interest. Many believe that the company’s brick-and-mortar business model is outdated.

However, Ryan Cohen has paired his sizable acquisition with bold suggestions for modernizing Bed Bath & Beyond’s strategy. These developments have generated euphoria among retail investors, who aim to prove short sellers wrong and perhaps even prompt a short squeeze.

Figure 1: Bed Bath & Beyond Stock: More Short Squeezing Ahead.

Figure 1: Bed Bath & Beyond Stock: More Short Squeezing Ahead.

(Read more from Wall Street Memes: Palantir Stock: Wall Street Says Federal Cyber Can Be Short-Term Catalyst)

Short Interest Booming

Bed Bath & Beyond’s shares have attracted attention from retail investors since the beginning of 2021. The company sported a massive short interest, and its fundamentals were heavily affected by the COVID-19 pandemic.

Even as pandemic effects have begun to taper off, there’s been no slowdown in BBBY short selling. Quite the opposite, in fact. The latest data show that, as of February 28, almost 30% of BBBY’s float is shorted. That represents a sizable, 13% increase compared to the previous month.

Figure 2: Bed Bath & Beyond short interest data.

Figure 2: Bed Bath & Beyond short interest data.

High short interest is usually a negative indicator for a publicly listed company - it implies that investors believe a company is overvalued and are generally looking upon shares with pessimism.

But excessive shorting could trigger a short-term rebound. When short interest becomes too high, short sellers become vulnerable to large-scale, short-term-catalyst-driven buying, which can in turn cause a short squeeze.

Remember that Bed Bath & Beyond shares received their "meme stock" bona fides during January of 2021, when a short squeeze caused BBBY shares to jump nearly 100%. A lot of that buy-side momentum was driven by retail investors on Reddit forums.

The Ryan Cohen Factor

GameStop's Chair and largest shareholder Ryan Cohen recently became the owner of almost 10% of Bed Bath's total shares through his holding company RC Ventures.

Along with his significant acquisition of BBBY shares, Cohen wrote a letter to the company's board suggesting several strategic changes to the company's business and management. Some key suggestions included (1) focusing primarily on improving Bed Bath & Beyond’s infrastructure and inventory; (2) spinning off buy buy Baby, a subdivision of the company, to relieve operational stress; and (3) evaluating a possible full sale of Bed Bath and Beyond, i.e., taking the company private.

Recently, Cohen also hired a proxy solicitor, who will poll shareholders on how they intend to vote on critical corporate issues. This indicates that Cohen intends to battle with Bed Bath & Beyond’s management for their interests in the company.

The Bed Bath & Beyond story looks similar to GameStop's story in a few ways. Both are strong and established retail brands, but their businesses have taken hits from shifts in retail dynamics (e.g., the rise of e-commerce and the phasing out of malls).

Mr. Cohen turned a startup online pet supplies retailer, Chewy, into a multibillion-dollar company. And he’s already helped reshape GameStop's business model, too. Therefore, he seems suited to advise on a potential retail turnaround for BBBY.

Finally, Cohen’s fame among retail investors, especially among GameStop's gigantic shareholder base, may drive further interest in BBBY shares.

MOMO And FOMO

These two acronyms represent psychological catalysts that can be key drivers of a short squeeze. Momentum plays (MOMO), and fear of missing out (FOMO), occur when a stock is heading in one direction and investors jump aboard for quick gains. A bullish move accelerates through the market, inducing investors to buy lest they miss out on the opportunity.

Thanks to the news of Ryan Cohen's acquisition, coupled with the already built in "meme appeal" of the stock, BBBY’s trading volume reached 105.6 million shares on March 7th. BBBY’s total float is only 186.4 million shares, and BBBY's average 10-day volume usually stands at 16.5 million.

Even after a natural correction in share price after their March 7th spike, BBBY shares have soared 26% over the past five days. This indicates that many momentum buyers have held onto their positions and may now be awaiting a new short squeeze.

(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)