What happened
Bed Bath & Beyond (BBBY) stock fell hard this week, dropping 19% through Thursday trading compared to a 2.2% slump in the wider market. Shares are now down 40% so far in 2022, according to data provided by S&P Global Market Intelligence.
The decline was partly driven by general volatility in this meme stock, but a bleak operating update from the management team also didn't help matters.
So what
On Wednesday, the retailer announced yet another strategic shift aimed at putting the business back on a sustainable growth path. This update contained plenty of good news, including aggressive cost cuts and the exiting of unprofitable retailing niches.
But investors also learned that management is not planning to spin off or sell its Buy Buy Baby brand, which might have provided a quick cash infusion.
Bed Bath & Beyond also updated its fiscal year outlook with a few grim metrics. Net sales will likely drop 26% in Q2, the company said, and cash burn will land at about $325 million compared to $500 million last quarter.
Now what
That guidance shows that it may be several quarters before investors see stabilizing sales and earnings trends. In the meantime, the shares could experience further slumps like this.
While the meme stock could enjoy brief periods of upward momentum, an investment in Bed Bath & Beyond carries major risks of negative returns. The business is losing market share in a declining industry. Inventory levels might require big markdowns through the holiday shopping season, too, adding pressure to its already weak profit margin.
Yes, the stock-price slump has made shares cheaper compared to early 2022. But that shrinking valuation makes sense given the fundamental growth struggles affecting the business today.
As a result, investors shouldn't look at this week's decline as a chance to buy the stock at a cheaper price. There are better, less volatile growth stocks available on the market.
