What happened

Shares of Bed Bath & Beyond (NASDAQ:BBBY) rose 5.7% last week, far outpacing the gains made by the Dow Jones Industrial Average, bolstered by a report a director bought 11,000 shares on the open market for an average price of $27.47 per share.

As one of the original so-called meme stocks that tend to trade more on the basis of social media chatter than business fundamentals, with over 21% of its outstanding shares sold short, Bed Bath & Beyond retains a loyal following among internet traders looking for a short squeeze to occur.

Man points up alongside a rising arrow

Image source: Getty Images.

So what

While many meme stocks have dicey financials, making their long-term viability suspect, Bed Bath & Beyond has a decent chance of turning around its business. With new management and a revitalized board of directors, the home-goods retailer is now narrowly focused on its core businesses after having shed most of its operations that were tangential to that mission.

Underscoring that more hopeful outlook, Bed Bath & Beyond announced it had reopened its flagship store in New York City that was modernized to reflect its new outlook. The store features more open sightlines, a better curated selection of merchandise, and in-store digital tools that can be accessed through the Bed Bath & Beyond mobile app.

Director Harriet Edelman's open market purchase of stock is a vote of confidence the home-goods retailer will succeed in its transformation.

Now what

Bed Bath & Beyond continues to be a cash-generating champion, having already produced $62 million in free cash flow (FCF) this quarter and expecting it to grow much higher in the coming quarters. 

That could get it back to the days not all that long ago when it was routinely producing over $1 billion annually in FCF. The home-goods retailer is still trading at a discounted value, going for less than 13 times earnings estimates, a fraction of its sales, and a bargain-basement 7 times FCF.

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