What happened

Shares of Bed Bath & Beyond (NASDAQ:BBBY) were soaring over 10% higher in afternoon trading Thursday on no specific company news, though it may be that investors who heavily shorted the stock are covering their positions.

So what

At last count, over 76 million Bed Bath & Beyond shares were sold short, the highest number since last May, giving it a short interest ratio, or the time it would take for short-sellers to cover their positions, some 14 days. Anything over seven days is considered a lot, suggesting a short squeeze is playing a role in the big gains. It may have been precipitated by some unusual options activity for the stock as well.

Investors may have been spurred to action by the home goods retailer's good fortune so far in 2021. The stock has jumped 40% over the first three weeks of the new year. 

Woman looking at kitchenware in a home goods store

Image source: Getty Images.

Now what

Bed Bath & Beyond is in turnaround mode, and it's starting to see some traction. Digital comps surged 77% last quarter, allowing margins to expand some and letting the retailer post an adjusted profit of $0.08 per share versus a $0.38 per share loss a year ago.

Despite the green shoots, the home goods chain still has a lot of work to do, and the short sellers might ultimately be right. But when a stock is rocketing higher, they have to be mindful of the adage: The market can remain irrational longer than you can remain solvent.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.