'One Giant Amateur Hour'? Here's Everything You Need To Know About Bed Bath & Beyond Stock

Zinger Key Points
  • "We have been working expeditiously ... with external financial advisors and lenders on strengthening our balance sheet," the company says.
  • It's not clear if any shares have been sold on behalf of Ryan Cohen's RC Ventures to date.
'One Giant Amateur Hour'? Here's Everything You Need To Know About Bed Bath & Beyond Stock

Bed Bath & Beyond Inc BBBY stock is falling back to Earth Thursday after staging an impressive rally in recent weeks. Here's a look back at how it got here, as well as some recent reactions to the move.

What Happened: It all started with retail. We can trace the increased interest in the name all the way back to the original meme stock, GameStop Corp GME. The excitement around the struggling retailer among retail traders really picked up when GameStop chairman Ryan Cohen purchased a stake in Bed Bath & Beyond in March.

By the end of March, the stock began to slide, trading from nearly $30 per share to as low as $4.38 by July. After finding its footing, the stock began surging again near the beginning of August on no apparent news. 

Retail favorites GameStop and AMC Entertainment Holdings AMC soared alongside the home furnishings company as retail traders highlighted the large short interest in the names across social media platforms.

Despite a flurry of downgrades, with one analyst calling the move the "latest meme stock frenzy," the stock continued to trend higher. It really took off this week as traders circled a recent filing from Cohen showing that he was still holding out-of-the-money call options.

Cohen's Form 144: In a major turn of events, a separate SEC filing from Cohen's firm RC Ventures showing intent to sell his stake in the struggling retailer sent the stock spiraling lower on Wednesday. 

JPMorgan filed an intent to sell 9,450,100 million shares, representing Cohen's total stake, on behalf of Cohen's firm RC Ventures, some of which are represented by call options.

The filing represents the potential sale of up to 7.78 million common shares, as well as 1,257 $60 strike call options, 444 $75 strike calls and 5,000 calls at the $80 strike. All of the call options are set to expire in January 2023. 

The date of notice for the filing is marked Aug. 16. It's not clear if any shares have been sold on behalf of RC Ventures to date.

Bed Bath & Beyond Responds: In response to media inquiries, Bed Bath and Beyond filed a Form 8-K with the SEC on Thursday, commenting on Cohen's involvement.

"We were pleased to have reached a constructive agreement with RC Ventures in March and are committed to maximizing value for all shareholders. We are continuing to execute on our priorities to enhance liquidity, make strategic changes and improve operations to win back customers, and drive cost efficiencies; all to restore our company to its heritage as the best destination for the home, for all stakeholders," the company said in the filing.

"Specifically, we have been working expeditiously over the past several weeks with external financial advisors and lenders on strengthening our balance sheet, and the Company will provide more information in an update at the end of this month," Bed Bath & Beyond added.

Reactions: Jim Cramer applauded Cohen's option strategy on Tuesday, just a day before the GameStop chair flipped and filed intentions to sell. 

"It's a brilliant strategy. It's clear this is well orchestrated," Cramer said, before referencing Cohen's call options. 

Following the statement from Bed Bath & Beyond Thursday, Cramer shifted his sentiment. 

He suggested that Bed Bath & Beyond shouldn't have approved the intent to sell because Cohen likely had "material non-public information," having appointed three members to the company's board as part of his investment deal in March. 

"I find it raises eyebrows, I believe it's ill-advised ... so I don't want to dismiss this and I do wish the agency would step in right now," Cramer said.

"I really feel like the company should come on air and explain themselves, in which they won't because they're too scared ... the whole thing has just been one giant amateur hour," he added.

KeyBanc Capital Markets analyst Bradley Thomas on Thursday highlighted recent trading activity in Bed Bath & Beyond shares as very unusual.

“From a fundamental perspective standpoint, we believe trends at BBBY remain challenged,” Thomas said.

The analyst maintained a Sell rating and slapped a $2 price target on the stock as he expects negative earnings and free cash flow throughout 2022. 

Related Link: Bed Bath & Beyond Analyst Says Pullback To $2 Likely, Trends At Retailer Remain 'Challenged'

The recent surge in Bed Bath & Beyond also grabbed the attention of famed short seller Jim Chanos, who pointed out that it's likely not just hedge funds that are short the stock.

"How has no one mentioned that trade creditors ($800M) and debt-holders ($1.4B) may be short $BBBY? This happens in distress situations. Particularly in the retail business," Chanos said via tweet.

Hedge funds aren't the only ones shorting the name, he suggested. Other parties are often short in similar situations, "particularly in companies with a large liability structure," he said.

BBBY Price Action: Bed Bath & Beyond has a 52-week high of $30.06 and a 52-week low of $4.38.

The stock was down 20.36% at $18.38 midday Thursday, according to Benzinga Pro.

Photo: Mike Mozart from Flickr.

Posted In: Bradley ThomasJim ChanosJim CramerRyan CohenNewsShort SellersSmall CapTop StoriesMoversMediaTrading Ideas