Bed Bath & Beyond's (BBBY) valuation soared early in 2021 after it became one of a handful of popular meme stocks. While the company's business was struggling, investors poured into its stock, hoping to trigger a massive short squeeze or benefit from other positive pricing catalysts.
For those who bought or held shares after the initial pricing pop, it hasn't exactly worked out that way. The company's share price is now down roughly 58% across 2022's trading and 88% from the high that it hit early last year.
Is the troubled retailer's stock due for another resurgence, or is this a case where meme momentum has worn off for good and poor financials leave little room for a valuation comeback? Read on for a look at bullish and bearish factors that could shape where the stock heads next.
Bull case: The valuation could leave room for upside
Sell-offs have pushed Bed Bath & Beyond's market capitalization down to roughly $487 million. Even more staggering, the retailer is valued at less than 8% of this year's expected sales. With that kind of basement-level valuation, even some very mild good news could be capable of powering a significant rally for the stock.
BBBY PS Ratio data by YCharts
Bed Bath & Beyond also continues to have high short interest, and it's possible that another short squeeze could drive gains for the stock. Even if new short squeezes or bouts of meme momentum weren't on the same level as what occurred in 2021, it's possible that these catalysts could spur big gains for the company's share price.
Roughly 39% of the beleaguered retailer's float is currently sold short, and moderately good news for the business (or other factors) could cause short sellers to cover their positions in order to avoid losses -- sending the stock higher in the process.
Bed Bath & Beyond's business is in rough shape, but there's very little expectation for recovery priced into its valuation, and high short interest on the stock potentially leaves the door open for another short squeeze. The beaten-down stock continues to look very high risk, but there are scenarios that could cause shares to soar above current pricing levels.
Bear case: There's a very real risk of bankruptcy
Bed Bath & Beyond's business is in dire straits. Revenue fell 27% year over year in the second quarter to land at $1.43 billion, and the company posted a loss of $366 million in the period. Comparable same-store sales fell 28% year over year in the quarter, and digital sales declined 22%.
The company has now posted a net loss of $723.8 million across the first half of the year, revenue is declining, and there doesn't appear to be a clear path to profitability. With very shaky financials, Bed Bath & Beyond is facing bankruptcy, and the stock could fall far below its current price even though the company is still generating billions of dollars in revenue and trades at minuscule price-to-sales multiples.
Bed Bath & Beyond is carrying roughly $1.7 billion in debt on the books. With losses mounting and loans coming due, the company will need to restructure under even less favorable terms due to rising interest rates, take on new debt, or sell new shares in order to raise funds. Bed Bath & Beyond is bleeding cash, and there aren't many signs that the company is capable of mounting a recovery.
Should you buy Bed Bath & Beyond stock?
Bed Bath & Beyond's soggy financials and declining business suggest that there's not much potential for recovery, and the rising interest rate environment makes it less likely that the retailer will be able to pull off a favorable financial restructuring.
Rising interest rates and other macroeconomic pressures also reduce chances the stock will be able to pull off another meme-powered rally -- as those seem to have been powered by unusual dynamics/conditions near the tail end of the last bull market.
Unless you're confident that the business can find some success with its turnaround or are hoping that its low valuation will leave the door open for another meme or short-squeeze rally, it's probably best to avoid Bed Bath & Beyond stock.
