Bed Bath & Beyond stock warrants an 80% drop: Analyst

Bed Bath & Beyond’s stock has gotten too big for its britches after a frenzied month of meme stock trading and warrants a good ole fashioned slamming, according to UBS analyst Michael Lasser.

On Thursday, Lasser reiterated a sell rating on Bed Bath & Beyond shares and slapped the stock with $3.50 price target, which assumed about 80% downside risk to the current BBBY stock price.

“I think that the company is still very challenged,” Lasser said on Yahoo Finance Live. “Sales have been under immense pressure. That is probably going to continue. This is even before we are in a real, true consumer recession. The stock has been disconnected from the fundamentals. It has been due to flows in the market and noise. As the stock becomes re-coupled with what’s actually happening at the company, there is going to be significant downside.”

Signs mark a Bed Bath & Beyond store in Somerville, Massachusetts, U.S. June 17, 2016. REUTERS/Brian Snyder

Lasser’s bearish call comes amid an otherwise bizarro few weeks for the badly struggling retailer.

Shares of the retailer — which is on the brink of potential financial chaos —have exploded 260% so far in August as retail investors rally around the meme stock. Bed Bath & Beyond stock skyrocketed by nearly 70% in intraday trading on Tuesday as a result of a massive short squeeze.

BBBY stock finished that session up 29% in a volatile.

Since Tuesday, the stock has tacked on another 11% even after dropping more than 20% after news that GameStop Chairman Ryan Cohen filed to dump all of his shares.

The insane trading activity for Bed Bath & Bath & Beyond appears to have been triggered by a few red meat items for the enthusiastic meme community, led by redditors on the r/wallstreetbets message board.

First, Cohen purchased out of the money call options on 1.6 million shares of Bed bath with strike prices between $60 and $80, according to a regulatory filing released Monday. That sent shares rocketing higher the next day.

Then, Cohen’s RC Ventures issued a new filing late Wednesday flagging the intent to sell his 11.8% stake in the retailer. That sent the stock into a fresh tailspin, as mentioned above.

“We think the fact that RC Ventures plans to liquidate its entire stake in the stock is a telling sign that there is less and less support of key fundamentally driven names in this gave,” Wedbush analyst Seth Basham, who also has a sell rating on Bed Bath & Beyond stock, said on Yahoo Finance Live. “With that catalyst, we think the stock can reverse its course and start trading down.”

In the meantime, the meme community is once again rallying together to counter institutional forces that hold opposing views on the stock and the underlying business.

On Monday, Yahoo Finance reported on signs of financial stress at Bed Bath & Beyond locations in New York — and received from feedback from BBBY fans. On Tuesday, B Riley slashed its rating to Sell on Bed Bath & Beyond, citing bewildering valuation on the stock in the same vein as UBS’s Lasser.

To be sure, all is not well fundamentally at Bed Bath & Beyond as Wall Street correctly points out.

After a failed push in 2021 and most of 2022 into stocking stores with private label goods no one had heard of while also closing stores and firing workers, Bed Bath & Beyond ended its most recent quarter with a little more than $100 million in cash, tanking sales, weak store traffic, and a badly damaged brand.

There is currently an interim CEO running the business, which came about after the booting of former top Target exec Mark Tritton, and some observers are wondering whether vendors will continue to ship all of the merchandise that Bed Bath & Beyond needs for the holiday season amid the retailer’s severely weakened financial state.

Bed Bath & Beyond said late Wednesday in a filing of its own it may have an announcement on a capital raise by the end of August.

“The road ahead will be long and filled with a lot of challenges,” Lasser said. “If they do come out of this challenging situation, the business could look a lot different — probably would look smaller.”

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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