Bed Bath & Back From The Beyond?
Since being delisted from major exchanges, the stock is up 300%. What's going on?
The popular meme stock is going down swinging, with a 30-day average volume of $4.8m
The rally in the share price can be partly attributed to asset and IP sales, as well as retail speculation of a resurrection.
Given bond pricing and the expected winddown timetable, we see little point in joining the last dance.
To explain the story of Bed Bath & Beyond (BBBY), the share price movements in the chart below do it succinctly.
The weekly candles help to show how throughout 2021, it fell into the category of being a meme stock. Retail investors pumped the stock hard in early 2021, forcing a short squeeze as institutional investors had to close out short positions.
One spike took the price up to $55, and others later in 2021 and 2022 saw rapid price movements that allowed many to profit from.
However, there was a reason why funds were actively shorting the company. BBBY was fundamentally not in a good place. The business had been losing money for years, and the turnaround plan and aim of cost reduction weren’t working. Granted, the retail investor interest did allow it to soldier on longer than it probably could have. Yet ultimately, it filed for Chapter 11 bankruptcy protection earlier in 2023.
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Here’s the interesting part
BBBY was delisted from the major exchange, yet it still can be bought and sold on the OTC market. It’s currently on the Pink Open Market, reserved for penny stocks and small-caps. It’s here that you can find BBBY.
Until everything gets wound up, including asset sales and even selling the brand (more on that shortly), the stock will still trade.
Incredibly, the average daily volume on the stock has been $4.8m over the past month. The stock has JUMPED by circa 300% since the delisting. Clearly, retail traders are still actively buying, even in the OTC market.
Not only that but there continues to be a dislocation between the amount of trading on the stock and the fundamental outcome for the business.
Why a resurrection isn’t likely
We hate to be the bearer of bad news, but we doubt the company is going to come back from the grave. Take a look at what likelihood the bond market is assigning for bondholders to get their money back:
Consider, too, that bondholders are ahead of the shareholders in the queue to get paid when the business is wound up! So it’s hard to argue that the stock is worth anything less than zero further down the line.
Investing…no, but trading…?
One factor that helped to push the share price up last week was confirmation of the sale of the name ‘Bed Bath And Beyond’ to online retailer Overstock.com for a cool $22m.
So in the short-term, there could be opportunities to jump in on other news stories relating to asset sales. Speculation about coming back from the grave could also spark some rally.
However, that carries a high level of risk, one that only a trader with a firm stop loss should be taking on. As for a long-term investor, there doesn’t seem to be anything going on here that could justify an investment.
Ideas to get long/short
We didn’t want to leave our readership base with no actionable ideas. Below is an excellent excerpt from our Wednesday piece. These trade ideas are designed to be in play for months to come:
The top stocks were screened as follows. The top best traditional performers in the month were then screened for relative strength by a unique measure that sorts by several relevant time periods. Those that pass both screens are buys for the month. The stocks that are both weak monthly performers and weak relative performers are short sales for the month.
This process has been applied to the Dow Jones 30 stocks by buying the top 5 rated stocks and by shorting the five lowest-rated stocks. From January 2020, the top five long stocks have risen by an amount about 56% greater than that of the short sales and 27% over the DJIA. The short sales were net negative over that time period at -10%.
The specific stocks are:
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