bed bath & beyond

Bed Bath & Beyond (NYSE: BBBY) is trading sharply higher today along with fellow meme stocks like AMC Entertainment and GameStop. All these stocks had soared to astronomical highs in 2021 amid pumping from Reddit traders who triggered a short squeeze in heavily shorted stocks.

GameStop and AMC especially stood out as both these companies were battling a survival crisis before Reddit traders triggered a short squeeze. While both GameStop and AMC have fallen sharply from their 2021 highs, they are still considerably higher than what they were before Reddit traders jumped in. Bed Bath & Beyond topped the list of stocks that Reddit traders were recommending in 2020 and 2021.

Meme stocks crashed in 2022 as investors shunned speculative names. However, over the last few trading sessions, we’ve seen a rally in meme stocks. Bed Bath & Beyond for instance has risen almost 3x from its 52-week lows. The stock plummeted in July after disappointing results for its fiscal first quarter of 2022. It also announced the ouster of its CEO Mark Tritton.

Bed Bath & Beyond reported a 25% YoY drop in its net sales in the quarter ending May 28. Also, comparable sales, which is a key metric for retail companies, plummeted by 23% in the quarter. The company’s adjusted gross profit margins also fell from 34.9% to 23.8%. The company ended the quarter with total cash of only $107 million but hinted that it is looking at asset sales to shore up its balance sheet.

Commenting on its outlook, Bed Bath & Beyond had said that it expects comparable sales recovery in the second half of the fiscal year “driven by inventory optimization plans, including incremental clearance activity.”

Short Squeeze Seems to be In Play in Bed Bath & Beyond Stock

A short squeeze seems to be in play as nearly half of BBBY’s outstanding float is sold short. In a typical short squeeze, traders buy stocks of heavily shorted companies. This leaves short-sellers scrambling to buy the shares and settle the trade. The buying from short sellers only adds to the upwards price action. At the height of the meme stock trade last year, GameStop’s short interest, which is the number of shares sold, was even higher than the outstanding float.

However, sooner than later fundamentals catch up with stocks, and meme stocks cratered in the back half of 2021, with the sell-off only intensifying in 2022. The sell-off is not limited to meme stocks and growth stocks have also tumbled. Palantir, which went public in 2020 through a direct listing, has also crashed.

Palantir is trading lower today also after it posed a loss in the second quarter and slashed its 2022 revenue guidance over government spending. Contracts from governments account for almost half of the company’s earnings.

Coming back to Bed Bath & Beyond, there seems another round of short squeeze in meme stocks and Reddit traders are getting active yet again.

Reddit Traders Are in Action Again

Wall Street analysts are also bearish on Bed Bath & Beyond stock and the majority of them rate the stock as a hold or a sell. Recession fears have been rising which would take a toll on stocks like Bed Bath & Beyond. Most brokerages have raised their odds of a US recession but President Joe Biden and members of his cabinet don’t see recession as imminent. Federal Reserve chair Jerome Powell has also said that while a recession is not certain, its probability would increase given its aggressive rate hikes.

The US economy contracted in the first half of 2022 and several indicators point to an impending recession. However, the job market has been exceptionally strong with the US unemployment rate falling to yet another multi-decade low in July after the economy added over half a million jobs in the month, which was over twice what economists were expecting.

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