Trader’s Insight: Bed, Bath and the Great Beyond
The world of retail lost a big name this week, as Bed, Bath and Beyond announced its bankruptcy. The company had been struggling for some time. In fact, they closed nearly half of their locations in 2022.
But that wasn’t enough to right the ship financially. Attempts at issuing convertible shares, and obtaining loans secured by inventory also failed to improve the company’s dire straits. That left bankruptcy.
That wasn’t the case just two years ago. Retail investors, flush with stimulus checks, rushed into heavily-shorted stocks. This created a short-squeeze, which sent shares jumping higher quickly.
However, squeezing a heavily-shorted stock doesn’t change a company’s fundamentals. Radical transformation of a company’s operations does. For a company operating in a brick-and-mortar retail space, the changes need to be fast – and sharp.
Meanwhile, many investors may have simply supported the company’s shares out of a sense of nostalgia. As with other so-called “meme” stocks, a loyal group of shareholders could be found. Even those willing to buy Bed, Bath and Beyond’s attempted private offering of convertible shares.
Trading a short-squeeze play should be just that – a trade. By staying with a company with weak, and worsening, fundamentals, investors in Bed, Bath and Beyond have now lost nearly all the money they put into the trade.