The word “bankruptcy” doesn’t seem to be scaring Bed Bath & Beyond (NASDAQ:BBBY) investors all that much. Shares of BBBY stock are ripping higher on the day, up more than 80% so far on Monday.
In the past, the dreaded “b-word” was typically a death sentence for a stock. But in an age where investors are dubbing companies as meme stocks and looking for volatile short squeezes, Bed Bath & Beyond and Carvana (NYSE:CVNA) are just two of the latest wild cards in the market.
However, this isn’t the first rodeo for BBBY stock — and that goes for the long and the short term.
The stock played a part in the short squeeze bonanza, which was led by GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC) and others near the end of the prior bull market. However, BBBY stock has also been a big performer over the last few weeks as well.
At one point in early January, shares rallied more than 360% from last month’s low. After a two-week pullback and then today’s rally, shares are up more than 135% from the Jan. 26 low. Of course, it helps that almost 50% of the stock is sold short, according to Fintel.
When will the squeeze end? The short answer is, nobody knows.
Time to Buy BBBY Stock?
Bankruptcy is one of the worst outcomes for investors. In many cases, it wipes out the value of the common stock, as bondholders, preferred stock and other stakeholders have a higher priority when it comes to getting their money back.
Why investors are buying BBBY stock isn’t quite clear. Obviously jamming the options volume can create additional volatility and short-lived rallies. And maybe that’s all this is, because clearly Bed Bath & Beyond is heading in the wrong direction.
The company has indicated it has missed payments to debtholders, while bankruptcy is an option on the table. As reported by the Wall Street Journal:
“Last week, Bed Bath & Beyond reiterated that it is exploring strategic alternatives in addition to filing for bankruptcy, such as raising capital in the debt and equity markets.”
It’s been cutting costs, closing stores and seemingly doing all that it can to hoard cash ahead of a potential bankruptcy filing. Worse, sales are under pressure while the bottom line continues to bleed profits.
Most investors will not benefit from trading or investing in something like BBBY stock. Unless they are good at evaluating distressed assets, the safer bet is to avoid something like this completely. The company is not tossing around bankruptcy as an option because business is going so well. Keep that in mind before taking a position in Bed Bath & Beyond.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
