Bed Bath & Beyond boom expands 75% in massive advance and challenges bears

(Bloomberg) — The three-week high of 349% for Bed Bath & Beyond Inc. , which helped fuel a wave of buying in MIM shares, is standing up to Wall Street banks sounding the alarm about the stock’s high valuations.

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The buying spree extended on Tuesday as the stock surged 79% before paring its gains to 29% and closing at $20.65 after a pair of trading halted. Bloomberg data showed that the stock was the most heavily traded stock with 385 million shares traded, more than 20 times the three-month average.

The rise came even as at least three banks on Wall Street downgraded the household goods company and recommended investors to sell shares amid “the stock frenzy”.

Susan Anderson of B Riley Securities earlier Tuesday lowered its sell rating from neutral, calling the retailer’s $1.65 billion valuation “unrealistic.” Baird’s Justin Kleiber downgraded the stock last week, before the stock’s latest explosion, warning that “the underlying risk/reward looks unattractive” as market share losses accelerate and the company burns cash.

None of that has stemmed the buying rally from the retail crowd that has paid $99 million per share since July 26, according to data compiled by Vanda. The data showed the net outflow included a record $46 million on Monday when the stock rose 24 percent to close at its highest level since late April.

Some investors rely on stocks to rise further. Call options betting the stock to trade above $45 by the end of the week, along with other contracts betting as high as $80 by mid-January, were among the most active derivatives associated with the stock, according to data compiled by Bloomberg.

Meme Frenzy

Short sellers at Bed Bath & Beyond have been hit with $662 million in paper losses in the market this month, including $218 million on Tuesday, according to data from analytics firm S3 Partners. The stock is “extremely compressible” given crowded short positions, and is likely to be pushed higher as short sellers are forced to cover their bets, Ihor Dusanyowski, managing director of predictive analytics at S3 Partners, said by email.

Shares of GameStop Corp and AMC Entertainment Holdings Inc. surge in activity. Video game retail sales surged as much as 15%, bringing trading to a halt, as the movie theater operator erased losses to rise 2.5%.

Bed Bath & Beyond was the top-purchased asset on the Fidelity platform, with orders more than double that of Tesla Inc. Its index was most mentioned on Reddit’s WallStreetBets and was popular in the popular StockTwits chat rooms. The company’s related debt also rose on Tuesday, after the stock rose, and it was among the biggest gainers in the high-yield market.

Even after the rally, the stock is still 61% below its January 2021 peak, and analysts see more losses on the horizon. Bloomberg data indicates that the average 12-month price target of $4.49 is about 80% down from current levels. Two-thirds of analysts recommend investors sell shares, the largest number in at least a decade.

(Updates stock movement, and adds details of debt gains in the penultimate paragraph.)

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