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Is Bed Bath & Beyond Stock The Next Short Squeeze?

BBBY has been on a roller-coaster ride since the company reported disappointing quarterly earnings. Could it be the next candidate for a short squeeze?

Retail chain Bed Bath & Beyond  (BBBY) - Get Bed Bath & Beyond Inc. Report announced third-quarter earnings on January 6. The company failed to beat expectations, reporting both earnings per share (EPS) and revenue misses for the second quarter in a row.

Wall Street is bearish on BBBY stock. Currently, the consensus has it marked as a sell, with a predicted downside of 11% from the current price of $15.10 per share.

Figure 1: Bed Bath & Beyond store.

Figure 1: Bed Bath & Beyond store.

As you can imagine, Bed Bath & Beyond has become a target for short interest. However, traders shorting BBBY may be playing with fire. Thanks to its high meme-stock appeal, Bed Bath & Beyond just may become the next big short-squeeze candidate.

Let's dig in.

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Bed Bath & Beyond Earnings Are a Washout

Bed Bath & Beyond's disappointing Q3 earnings included a loss of 24 cents per share, a much bigger drop than the loss-per-share of 1 cent the consensus had expected.

In addition, revenue declined by 28% year-over-year, coming in at $1.88 billion for the quarter.

According to the company's management, supply-chain disruptions were a major cause of the 7% reduction in year-over-year net sales.

Bed Bath & Beyond President and CEO Mark Tritton reported that the company is responding to major headwinds such as supply-chain bottlenecks and inflation with market-driven pricing, promotion optimization, and product mix plans.

He claimed that these actions have led to an improved adjusted gross margin rate that exceeds 2020 and 2019 as part of a three-year transformation strategy.

Bed Bath & Beyond also delivered fourth-quarter guidance that was well below what Wall Street had expected due to planned sales reductions from divestitures and the company's store fleet optimization program.

Wall Street Puts BBBY Stock to Bed

As you can imagine, Wall Street is not pleased with the company's financial results and Q4 guidance. The analyst consensus currently forecasts an average downside of 11% from BBBY's current price and recommends it as a "moderate sell."

Analysts at Argus revised their forecast for Bed Bath & Beyond's fiscal-year 2022 EPS, claiming that COVID-era cost-cutting efforts and operational restructuring has led to weaker-than-expected performance.

Loop Capital was even more pessimistic, recommending that investors sell the stock. Analysts here remarked that the third-quarter results went "from bad to worse" and highlighted the "substantial" loss in revenue, profitability, and earnings. Loop places the blame not only on macroeconomic factors, but also on a loss of market share and customer relevance.

Short Interest Ramps Up

It's no surprise that short sellers are betting against Bed Bath & Beyond shares, given its disastrous quarter. According to the latest data, nearly 27% of BBBY shares are currently being shorted. However, that's lower than December 2020, when short interest passed 60%.

Figure 2: BBBY percentagem of float shorted over time.

Figure 2: BBBY percentagem of float shorted over time.

BBBY's Meme-Stock Appeal

Bed Bath & Beyond shares definitely have meme appeal. The stock skyrocketed more than 100% last January thanks to a short squeeze. Redditors have placed it in the "resurrected boomer" category, alongside BlackBerry  (BB) - Get BlackBerry Limited Report, Nokia  (NOK) - Get Nokia Oyj Report and Macy's  (M) - Get Macy's Inc Report.

BBBY has cropped up as one of the most-discussed stock tickers on Reddit forums. The stock's latest "meme move" occurred after it dropped nearly 40% in October 2021 due to weak Q2 earnings. The meme factor sent it climbing 75% by the end of November.

However, BBBY is now down nearly 40% from its November 2021 peak.

I believe Wall Street's current bearishness will lead to more short sellers betting against Bed Bath & Beyond's stock. In turn, that could lead to BBBY becoming the target of a short squeeze in the coming weeks. 

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(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 the Wall Street Memes)