If GameStop was the favorite stock in 2021 among individual investors, Bed Bath & Beyond is quickly lining up for this year’s crown among meme stock investors. But the home store looks to pack in all the volatility of the one-time r/WallStreetBets favorite in a matter of days.
In the past month, Bed Bath & Beyond stock has risen 365%. But on Thursday they fell, losing nearly 30% of their value at one point and ending the day down by approx. 20% – before quickly falling another 30% in after-hours trading. What’s up? It’s a perfect storm of household names, speculative investments and, natch, Reddit. Here’s a quick refresher course if you’re trying to get up to speed.
What triggered Bed Bath & Beyond stock?
As increase in GameStop and AMC, the Bed Bath & Beyond rally was largely driven by individual investors (aka retail investors), many of whom congregate on Reddit’s r/WallStreetBets subreddit. Friday the 12th In August, the stock was trading around 11 dollars per share, when prices started to rise. By Monday, August 15, it reached $16. And has climbed as high as $23.
The buying frenzy comes seven weeks after chief executive Mark Tritton was displaced, and the company reported disappointing earnings for its first fiscal quarter.
Who is Ryan Cohen and how did he start the rally?
Ryan Cohen, co-founder of Chewy and the current chairman of GameStop, announced on March 6 that he had purchased a large stake in Bed Bath & Beyond via his venture firm RC Ventures. At the time, he bought a 9.8% stake in the company, but increased his stake over time until he owned 11.8%, making him the largest non-institutional shareholder.
Cohen is seen by the r/WallStreetBets crowd as the savior of GameStop and the company’s best bet for a lucrative future, so his ongoing interest in Bed Bath & Beyond ultimately pushed retail investor interest into a frenzy.
How big were the gains at the top?
They were quite massive. Bed Bath & Beyond shares traded in the $4 to $6 range for most of the past month. But from August 4 to August 13, they rose to more than $23. Even with Thursday’s spiral, the stock is still up nearly 275% over the past 30 days.
However, long-term investors are not in the same celebratory mood. Year to date, the company is up just 22%, as the stock saw a big rally in April, but had fallen since then.
What led to Thursday’s massive sell-off?
Ryan Cohen gives and Ryan Cohen takes away. After the market closed on Wednesday, RC Ventures announced via a regulatory filing that it planned to sell its entire 11.8% stake in the company within the next 90 days. That spooked investors, especially some on Reddit, and selling started almost immediately.
Why is the stock falling even further after trading on Thursday?
After the market closed Thursday, Cohen announced via another regulatory filing that he had indeed completed the sale of all of his Bed Bath & Beyond holdings. It is unclear when this happened, but he has definitely walked away from the company – just days after regulatory filings raised investors’ hopes that he would stay on.
On Monday, Bed Bath & Beyond said, via a regulatory filing, that Cohen had purchased more than 9.4 million shares of the company through RC Ventures, including more than 1.6 million in remote call options with exercise prices between $60 and $80. It indicated he was in it for the long haul. Three days later he is completely out.
After closing down 20% Thursday at $18.55, shares quickly fell another 30% in aftermarket trading on the news to $13.46 a share.
Who is Jake Freeman and how does he factor into this?
The other part of this one-two punch is a 20-year-old student named Jake Freeman, who also sold his shares in the company on Wednesday, all 5 million of them.
Freeman, an applied mathematics and economics major at the University of Southern California, was the company’s second largest individual investor. He bought those shares in July for less than $5.50 each, making his gain over $100 million.
“I certainly did not expect such a ferocious rally upwards,” Freeman told Financial Times. “I thought this was going to be a six-plus month game. . . . I was really shocked that it went up so quickly.”
After selling the shares, he went to dinner with his family, then flew back to school in Los Angeles.
Wait . . . how could a student buy so much stock?
Freeman managed to scrape together $25 million, mostly from friends and family. (He interned at a hedge fund in New Jersey and has invested for years with his uncle, so he had a track record.) He put everything into Bed Bath & Beyond and immediately sent a critical memo to the board, noting that the company our “facing an existential crisis to survive.“
Is Bed Bath & Beyond worth the high prices it was traded for?
Ultimately, a company’s value is determined by its shareholders. Many would argue that GameStop isn’t worth anywhere near the $37 trading price (much less the $81 it reached last year), but if you want to be a shareholder, that’s the price of admission.
However, professional investors say the rally in Bed Bath & Beyond shares is bordering on the ridiculous.
“This is a company that was already looking at buying their coffin not too long ago and has pretty anemic year-over-year growth projections in the near term,” Eric Schiffer, CEO and chairman of the private equity firm Patriarch Organization, told MarketWatch. “This [rally] is less about logic and rationality and more about the tribe [of meme stock investors]its call to arms.”
This article has been updated with information about BBBY’s aftermarket.