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If GameStop was the favorite stock of 2021 among individual investors, Bed Bath & Beyond is quickly lining up for this year’s crown among meme stock investors. But the home goods store seems to be packing all of the volatility of the one-time r/WallStreetBets favorite into a matter of days.
In the past month, Bed Bath & Beyond shares have soared 365%. But on Thursday, they came tumbling down, losing nearly 30% of their value at one point and ending the day down about 20%—before quickly dropping another 30% in after-hours trading. What’s going on? It’s a perfect storm of familiar names, speculative investing and, natch, Reddit. Here’s a quick catch-up course if you’re trying to get up to speed.
What sparked the Bed Bath & Beyond stock surge?
Like the surge in GameStop and AMC, the Bed Bath & Beyond rally was largely driven by individual investors (also called retail investors), many of whom gather on Reddit’s r/WallStreetBets subreddit. On Friday, August 12, the stock was trading around $11 per share, when prices started to rise. By Monday, August 15, it topped $16. And has climbed as high as $23.
The buying frenzy comes seven weeks after CEO Mark Tritton was displaced, and the company reported disappointing earnings for its first fiscal quarter.
Who is Ryan Cohen and how did he fuel the rally?
Ryan Cohen, the cofounder of Chewy and the current chairman at GameStop, announced on March 6 that he had bought a large stake in Bed Bath & Beyond via his venture firm RC Ventures. At the time, he purchased a 9.8% stake in the company, but increased his holdings over time until he owned 11.8%, making him the largest noninstitutional shareholder.
Cohen is seen by the r/WallStreetBets crowd as the savior of GameStop and the company’s best bet for a lucrative future, so his ongoing interest in Bed Bath & Beyond eventually pushed retail investor interest into a feeding frenzy.
How big were the gains at the peak?
They were pretty massive. Bed Bath & Beyond shares traded in the $4 to $6 range for most of the past month. But from August 4 to August 13, they spiked to more than $23. Even with Thursday’s spiral, the stock is still up nearly 275% in the last 30 days.
Longer-term investors, though, aren’t in quite the same celebratory mood. Year to date, the company is up just 22%, as the stock saw a big surge in April, but had been slipping since then.
What led to Thursday’s massive sell-off?
Ryan Cohen giveth and Ryan Cohen taketh away. After the market close Wednesday, RC Ventures announced via a regulatory filing that it planned to sell its entire 11.8% stake in the company within the next 90 days. That spooked investors, especially some on Reddit, and the sell-off started almost immediately.
Why is the stock falling even further in after hours trading Thursday?
After the market closed Thursday, Cohen announced via another regulatory filing that he had, in fact, finalized the sale of all of his Bed Bath & Beyond holdings. It’s unclear when this happened, but he has definitely walked away from the company—just days after regulatory filings raised investors’ hopes he would be sticking around.
On Monday, Bed Bath & Beyond, via a regulatory filing, said Cohen had bought over 9.4 million shares of the company through RC Ventures, including more than 1.6 million in distant out-of-the-money call options with strike prices between $60 and $80. That indicated he was in it for the long term. Three days later, he’s out completely.
After closing down 20% on Thursday at $18.55, shares quickly fell another 30% in after-market trading on the news to $13.46 a share.
Who is Jake Freeman and how does he factor into this?
The other part of this one-two punch is a 20-year-old college student named Jake Freeman, who also sold his shares of the company on Wednesday, all 5 million of them.
Freeman, an applied mathematics and economics major at the University of Southern California, was the company’s second largest individual investor. He bought those shares in July at less than $5.50 each, so his gain worked out to over $100 million.
“I certainly did not expect such a vicious rally upwards,” Freeman told The Financial Times. “I thought this was going to be a six-months-plus play. . . . I was really shocked that it went up so fast.”
After selling the shares, he went to dinner with his family, then flew back to school in Los Angeles.
Wait . . . how was a college student able to buy that much stock?
Freeman was able to scrape together $25 million, mostly among friends and family. (He interned at a New Jersey hedge fund and has invested for years with his uncle, so he did have a track record.) He plunked it all into Bed Bath & Beyond and immediately sent a critical note to the board, noting the company was “facing an existential crisis for its survival.“
Is Bed Bath & Beyond worth the high prices it was trading at?
In the end, a company’s value is determined by its shareholders. Many would argue GameStop isn’t worth close to its trading price of $37 (much less the $81 it hit last year), yet if you want to be a shareholder, that’s the price of admission.
Professional investors, though, say the drive-up in Bed Bath & Beyond shares borders on ludicrous.
“This is a company that had already been looking at the purchase of their casket not long ago and has fairly anemic year-over-year growth projections in the short term,” Eric Schiffer, chief executive and chairman of private equity firm Patriarch Organization, told MarketWatch. “This [rally] is less about logic and rationality and more about the tribe [of meme stock investors]’s call to arms.”
This article has been updated with information about BBBY’s after-market trading.
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