(Bloomberg) — It’s been a stunning start to the year for investors in Bed Bath & Beyond Inc. After the company’s bankruptcy warning sparked renewed buying by retailers and led to a rally reminiscent of the stock frenzy two years ago.
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Shares in the home goods retailer are up 179% this week, more than erasing a drop in the share price that followed the company’s Jan. 5 warning that it might need to file for bankruptcy. While the rally subsided on Friday, with the stock down 30%, Bed Bath & Beyond still notched record weekly gains.
Nearly 1 billion shares changed hands this week, the most active five-day trading activity since August, when Bed Bath & Beyond’s volatility jumped amid a pickup in retail activity. Despite the weekly rally, its shares remain down more than 90% from the peak in January 2021.
Bed Bath & Beyond’s bankruptcy warning last week triggered a flurry of retail buying, data from Vanda Research showed, with the group buying nearly $33 million of its stock since markets closed Jan. 4.
“Retail speculators are following tactics first developed around the Hertz bankruptcy case in 2020 and subsequently applied to Revlon stock in June 2020,” a group led by Vanda Vice President Marco Iachini wrote in a January 12 note.
Investors have also been reconsidering stocks that have come under pressure in 2022 as the Federal Reserve continues to raise interest rates. A group of meme stocks tracked by Bloomberg are up 15% in 2023 after falling 45% last year. GameStop Corp. and AMC Entertainment Holdings Inc. and Carvana Co for the week with gains of more than 20% each.
Certainly the amount of purchases and the extent to which Bed Bath & Beyond enthusiasm spreads to other meme stocks has been limited so far, relative to other bursts of activity for retailers, according to Vanda. In August, for example, retail speculators bought an all-time high of $73.2 million in stocks in one day.
“A broader increase in retail appetite could push flows into these names higher,” they wrote, especially as the latest monthly inflation reading comes to an end, and the Fed’s next meeting is about two weeks away. “But the hurdle of reaching past net-flow highs seems daunting, and any meme stock obsession is expected to be short-lived.”
The Bed Bath & Beyond rally has already pressured short sellers who have recently taken positions betting that the company’s bankruptcy warning will come quickly, meaning the group must consider whether to dump their bet or buy back shares to limit further losses. If the company goes bankrupt, the short positions will profit. Bloomberg reported Thursday, citing people familiar with the matter, that the company is talking to potential lenders who will finance the company during bankruptcy proceedings.
But the longer a company stays around and gains interest in retail trading, the more likely it is that a “massive short squeeze” will occur, according to Ihor Dusanewski, head of predictive analytics at S3 Partners.
Bed Bath & Beyond’s short interest is $213.3 million, or roughly 41 million shares sold short, up from about 36 million shares sold one month ago, according to data from S3 Partners. Short sellers have already seen paper losses of about $112 million this year through Thursday, according to S3 data.
Those losses, along with higher stock borrowing costs, make Bed Bath & Beyond “one of the more shrinking stocks in the market,” Dusaniwsky said.
(All-time updates stock price movements, volume data and first chart.)
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