(Bloomberg) — Bed Bath & Beyond Inc. continued to climb Thursday, climbing for the fourth day and closing at its highest level since late October after the company’s bankruptcy warning sparked renewed interest from retailers.
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Shares of the homewares retailer rose 50%, adding to gains of 166% in the previous three sessions. Other so-called meme stocks also added to Thursday’s gains after jumping on Wednesday. Carvana Co. surged 46%, its biggest gain ever, while flagship meme stocks AMC Entertainment Holdings Inc. and GameStop Corp. posted more modest gains.
Retailers have helped fuel the recent spike, funneling millions into Bed Bath & Beyond and pumping their bets onto social media sites and chat rooms. Those investors bought $7.3 million worth of Bed Bath & Beyond stock on Wednesday, more than doubling their net purchases since the market closed on Jan. 4, data from Vanda Research showed.
Those buying continued Thursday, with the stock receiving the second most buy orders on Fidelity’s platform, trailing only Tesla Inc. Ads on platforms like Reddit’s WallStreetBets and Stocktwits have accelerated alongside retail purchases in recent days.
Volatility at Bed Bath & Beyond has skyrocketed since the company warned last week that it may have to file for bankruptcy. The stock’s 10-day volatility hit its highest level in at least five years, beating previous levels when meme-stock mania captivated investors in early 2021.
Back then, individual investors banded together on social media with the goal of punishing short sellers while making their own fortunes. This led to stunning rallies in stocks like Bed Bath & Beyond and GameStop. With Bed Bath & Beyond short rates rising to around 53% from 47% a month ago, according to data from analytics firm S3 Partners, more pressure could be on the horizon.
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“Unless bankruptcy is in Bed Bath & Beyond’s future, the rising stock price will force a massive short squeeze and short sellers will rush to the doors buying buy-to-cover for a portion of their mark-to-market gains.” deserved to keep in 2022,” wrote Ihor Dusaniwsky, Head of Predictive Analytics at S3 Partners, in a research note.
Bed Bath & Beyond plunged 83% in 2022 in its worst year on record, according to data dating back to 1993 compiled by Bloomberg.
The retailer has the second-largest short interest percentage of free float for shares with over $10 million short interest, only behind Silvergate Capital Corp., Dusaniwsky said. But a key difference between Bed Bath & Beyond and other crowded shorts is the increased likelihood of a bankruptcy filing.
“As the threat of bankruptcy becomes a certainty, the prospect of a Bed Bath & Beyond short squeeze dwindling, we can expect minimal shorting coverage as short sellers await a $0.00 share price,” wrote he.
Bed Bath & Beyond is in talks with potential lenders who would fund the company during the bankruptcy proceedings, Bloomberg reported Thursday, citing people with knowledge of the matter. Dealers seemed unfazed by the report, pushing shares up about 6% in late trade.
Despite the recent rally, Bed Bath & Beyond remains about 90% below its peak of $52.89 during the meme stock craze about two years ago.
(Updates stock price movements throughout; adds details of company’s discussions with potential lenders in penultimate paragraph.)
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