Bed Bath & Beyond Is Leaving A Wake Of Closing Stores On Its Path To Bankruptcy – What This Means For Meme Stock Investors And BBBY’s Competitors

Key takeaways

• Bed Bath & Beyond has gone through years of falling revenues and profits that have forced store closures
• Despite the company’s negative performance, its stock price has seen major spikes thanks to its status as a meme stock
• The company missed interest payments on $1 billion in bonds, making a bankruptcy in the coming weeks likely

Bed Bath & Beyond, a home merchandise store, is embroiled in financial struggles that could cause it to declare bankruptcy soon. At the start of February, the retailer announced that it failed to make required payments on $1 billion worth of bonds, setting off a 30-day grace period during which it must make good on the debt or find another way to continue operating.

This leaves investors in so-called meme stocks wondering what will happen to their latest investment trend.

What is a meme stock?

A meme stock is a company that has become part of a viral trend among online investors. Typically, this leads to investors buying shares in the business and driving its stock price upward significantly.

If you’re looking for help getting in on the latest stock trend without the stress of reading every article, check out Q.ai Investment Kits. For example, the Short Squeeze Kit offers an opportunity to profit among heavily shorted stocks.

Investor communities on social media often dedicate significant amounts of time to researching, discussing and joking about specific meme stocks, encouraging others to buy in. In many cases, collective action from these communities can create a short squeeze in certain stocks.

A short squeeze occurs when the price of a heavily shorted stock starts to rise. Those with short positions (those who are betting the stock will lose value) may panic and buy shares to reduce their risk, pushing higher prices. This can lead to massive increases in stock prices.

This is what happened with GameStop, one of the best-known meme stocks. When the company became a meme stock and began to rise in value, the short squeeze catapulted its shares from $17.25 to more than $500 per share during pre-market trading. A coordinated short squeeze occurred in January 2021, increasing the company’s valuation by around 30X.

What’s happening with Bed Bath & Beyond?

Bed Bath & Beyond has struggled recently. Though the company’s share price rebounded after a drop during the COVID-19 pandemic, it has been trending downward since mid-2021.

The company has battled constantly falling revenue and profits, making it easy to see why shares have fallen.

Despite this poor performance, Bed Bath & Beyond gained the attention of online investing communities that invest in meme stocks. This interest caused share prices to spike a few times between 2020 and today despite the overall downward movement.

The latest price spike came in early January as online investors helped push the company’s price from $1.31 per share to $5.24, an increase of about 300%.

Following the trend of meme stock prices diverging from the apparent reality of the company’s performance, the stock moved from $2.74 at opening on the morning of February 1, 2023, to a high of $2.95 before settling at $2.82 by the day’s end despite the company’s announcement of missed bond payments. The stock opened the next day at $3.41 and closed at $3.33.

Though the company has a 30-day grace period to make good on its interest payments, the odds are relatively low. The company closed roughly 150 stores in August of 2022 and announced further closures this year.

With the announcement of the missed interest payments, a spokesperson for the company shared that the company could enter bankruptcy within weeks.

What it means for the competition

For a long time, Bed Bath & Beyond managed to fight against changing consumer trends, resisting the rise of online retail. The company peaked in 2013 with a value of $17 billion, well into Amazon’s rise as one of the top retailers in the world.

However, it saw the writing on the wall and took on significant debt to improve its online shopping experience. It also had to turn to debt after the pandemic receded as post-COVID shoppers failed to appear in its stores.

Competitors can view Bed Bath & Beyond as a cautionary tale, showing how even successful businesses can stumble and ultimately fail. It can also show that in-person retail may not be as successful as hoped in a post-pandemic world, driving businesses to look for other revenue sources.

Why it’s important for investors

Bed Bath & Beyond’s story is important for investors to understand. For one, it’s a great illustration of the concept of meme stocks. Despite a constantly worsening financial situation, the company’s stock has seen massive price spikes. Even hugely negative news of missed bond payments, which herald an impending bankruptcy, caused the stock price to rise.

The fact that the market can be irrational and react unexpectedly is vital for investors to learn. Investing based on trends is possible, but it’s also essential to do due diligence and look at the underlying business, lest you buy into a company poised to fail.

Given the stock market’s apparent lack of rationality, figuring out the best way to invest can be difficult. If you want help, consider working with Q.ai. Its artificial intelligence can help you invest toward any goal and is designed to succeed in any market. With Investment Kits and Portfolio Protection, investing can be easy and fun.

The bottom line

Bed Bath & Beyond opened 2023 by warning investors that it might go bankrupt. Given recent news, it looks increasingly likely that the company will fail sooner rather than later.

Investors watching the stock will see how online memes can impact the market and what it looks like when a large brand ultimately fails.