Ticker Symbol: BBBY
Shares in Bed Bath & Beyond Inc, the home and beauty retailer, dropped by 7% in the mid-morning trading session. This comes on the heels of a 40% slump on Friday, and a 56% combined slump since Wednesday when shares closed at $23.08. Bed Bath & Beyond is one of the “meme” stocks that retail traders focused in on last year, along with companies such as GameStop and AMC Entertainment. Shares in those companies were down 3.8% and 0.8%, respectively. Bed Bath & Beyond shares are still up over 127% from their June 6th low of $4.47.
Shares have fallen for the past three consecutive days after the Chairman of GameStop, Ryan Cohen, exited his 10% stake in the company. Cohen has often been labelled the “pied-piper” of the Wall Street Bets movement, and his exit from the company spurred others to exit their positions as well. Bed Bath’s credit rating was also downgraded this morning by S&P to CCC and the Wall Street Journal reported over the weekend that the company is struggling to get drum up a capital injection into the business. Reports have also emerged that some suppliers to the retailer have restricted shipments as the firm has fallen behind on payments.
The recent bounce in meme stocks could be related to the improved broader investor sentiment in the stock market. The Nasdaq 100, for example, has bounced almost 20% from the lows the index hit on June 16th. Meme stocks such as Bed Bath & Beyond and GameStop are considered “high beta” stocks. High beta stocks generally follow the trend of the market, but at a significantly increased amplitude. In other words, during bull markets, high beta stocks outperform, and in bear markets, beta stocks underperform the broader market.
Another reason for the recent gains in these stocks could be related to the concept of a
short squeeze. A short squeeze happens when high levels of short positions on a stock cause a swift increase in the stock price as short sellers are forced to buy back shares to close their positions or meet margin calls. As the demand for shares goes up, more and more short sellers are forced to buy shares, pushing prices higher and higher.
Bed Bath & Beyond had a short interest of close to 43% of its free float, as of July 29th, according to data from Markit Securities, which is only marginally lower than a short interest of 45% from July 15th. Any short interest of above 20% is considered abnormally high. Traders on social media website Reddit, have been known to systematically target companies with a high short interest as well. When traders collectively decide to push shares higher, it can trigger violent bouts of price movements in the underlying companies.
This content is provided for general information purposes only and is not to be taken as investment advice nor as a recommendation for any security, investment strategy or investment account.
