What happened

Shares of Bed Bath & Beyond (BBBY) were surging as a short squeeze that started on Friday, initiated by traders on Reddit's WallStreetBets forum, carried into a second day.

Today, the stock was up 38.1% as of 10:07 a.m. ET, after gaining 33% on Friday. Over a two-day span, Bed Bath & Beyond stock has nearly doubled.

So what

Meme stocks are back. Many of the stocks that skyrocketed in the original WallStreetBets-led short squeeze in January 2021 are soaring again, including GameStop, AMC Entertainment, Bed Bath & Beyond, and others. 

On WallStreetBets, hundreds of traders have posted, jumping into the Bed Bath & Beyond rally. Like what happened with the original meme stock surge, if enough traders pile into a heavily shorted stock, short-sellers are often forced to buy it back, helping to accelerate the rally. Similar behavior in the options market can also force a gamma squeeze, further lifting the stock.

According to data from Yahoo! Finance, 101% of Bed Bath & Beyond's float -- or shares not held by insiders -- has been sold short, meaning some shares have even been shorted twice. In order for short-sellers to close out their bets, they have to buy the stock back, so all of those shares need to be bought eventually. If the stock continues to rally too high, short-sellers could face a margin call.

That high short percentage made Bed Bath & Beyond an easy target for the WallStreetBets traders, who tend to favor struggling consumer stocks.

Now what

Based on fundamentals, Bed Bath & Beyond looks like a stock best avoided. Sales have collapsed following the boom in home furnishings during the pandemic. Revenue fell 25% in its most recent quarter, with comparable sales down 27% at the core Bed Bath & Beyond brand. Gross margin plunged 850 basis points to 23.9%, and the company posted an adjusted net loss of $225 million. The board also just ousted its CEO, Mark Tritton, who was originally brought in to turn around the faltering business in 2019.

The fundamentals matter little to the WSB crowd, however, and the stock could keep rallying from here depending on how the squeeze plays out. But over the long term, Bed Bath & Beyond stock is likely to fall back down unless the underlying business can show lasting improvement.