As meme stocks continue to be a force in retail investing, companies such as GameStop and AMC Entertainment have seen their stock prices rise despite poor performance. Bed Bath & Beyond (BBBY) has also had its share of meme stock status. Is there more to this company than a fan base of retail investors? Or should you steer clear?
What's with the stock price?
Bed Bath & Beyond's price has been all over the place for the past few years. That began with falling sales and an out-of-touch business model, sending the price downward. Activist investors ousted management and installed Mark Tritton as CEO almost three years ago, but after some cautious optimism, the price plunged in March of 2020 along with the rest of the stock market.
The stock rose again as the Bed Bath & Beyond's new store approach looked promising, and then the WallStreetBets phenomenon took off last year. That's when a group of retail investors banded together online to hype the shares in an effort to create a short squeeze for institutional investors that would send the price higher. But over the past year, the stock's performance has suffered once again, hurt by renewed short interest.
The zigzag nature of Bed Bath & Beyond's stock is important to highlight because it is not normal for most stocks. Typically, although not always, a stock moves in line with business performance, such as in reaction to a quarterly report. When a stock price moves out of tandem with business performance, whether up or down, that's a large red flag.
How is Bed Bath & Beyond's business?
Not only did Bed Bath & Beyond post falling sales in the second quarter, but sales have been on the decline for years.
BBBY Revenue (Quarterly) data by YCharts
Tritton appeared to be making progress after the initial pandemic decrease, but consumers coming back to stores didn't buy into the company's new model. Tritton's strategy attempted to address complaints that stores were overstuffed with too many items and choices -- and that customers wanted a more curated selection with easier-to-navigate store displays. However, customers also didn't connect to the new Bed Bath & Beyond. The foray into owned brands, which Tritton successfully mastered as chief merchandising officer at Target, was too much of a shift.
Tritton was replaced in June after a miserable first-quarter report with a 23% comparable sales decrease, ballooning losses, and contracting margins. The company also announced a replacement for chief merchandising officer and chief accounting officer, and more recently is dealing with the tragic death of its CFO.
Management said it expected comps performance to improve for the remainder of the year, but investors shouldn't expect growth just yet. The company released an all-encompassing strategy to cut costs and boost sales through closing underperforming stores, bringing back loved brands, discontinuing some of the owned brands, and more.
Is there any reason to buy the stock?
Using the stock market for quick trades doesn't usually result in wealth creation. Wealth is created by finding great companies and holding them for the long term. Bed Bath & Beyond doesn't fit the bill right now. It is under interim management while the board tries to fill a slew of executive positions. That's uncertainty at best, which is risky itself, on top of a struggling business.
The recent drop in the stock market can create some amazing buying opportunities for shares of excellent companies. Then there are value traps, or stock price cuts that look cheap but don't offer the potential for gains. Unfortunately, at the current time, Bed Bath & Beyond doesn't look like a stock to buy, and investors should look for more compelling opportunities while this company figures out where it's going.
