Shares of Bed Bath & Beyond (NASDAQ:BBBY) stock are trading about 10% lower today, but are still up over 100% year-to-date. This morning, it was announced that the retailer is currently in talks with lenders concerning its possible Chapter 11 bankruptcy filing. These talks include the possibility of a horse bid, which would see a lender offer to buy some or all of Bed Bath’s assets in a bankruptcy auction by setting a low-range bid.
Meanwhile, Reuters reported this morning that the company is in talks with Sycamore Partners concerning a sale of its assets. The sale would include Bed Bath’s chain of Buy Buy Baby stores.
In the past month, the company has disclosed a going concern warning and stated that it would explore all available avenues to restore financial health. It also reported its third-quarter earnings, which came below expectations. Bed Bath reported a net loss of $393 million and sales of $1.259 billion, down 33% year-over-year.
Barron’s reports that BBBY stock carried a short interest of as a percentage of float of 50.27% as of Dec. 30. Shares of BBBY are currently in the red today, begging the question: Is the short squeeze over?
BBBY Stock: Did Bankruptcy Talks Kill the Short Squeeze?
In the case of BBBY, a short squeeze isn’t the only major factor that could drive up the price of shares. Since 2020, retail investors have taken a liking to companies that are at imminent risk of bankruptcy. This could be due to the possibility of a buyout or a “white-knight” investor swooping in to save the day. It could also be due to the low prices of companies that are nearing, or have already filed for, bankruptcy.
It’s possible that Bed Bath could experience the same price action as bankrupt Sears in 2018. Shares of the company rose by 100% four times before they were taken off the market.
Ultimately, it’s difficult to say whether the BBBY short squeeze has run its course. However, investors should expect highly volatile price action over the coming weeks as the company finalizes its bankruptcy plans. InvestorPlace analyst Tom Yeung notes that shares would have to rise to the $25 range in order for Bed Bath to issue enough equity to last for the upcoming year.
On the date of publication, Eddie Pan did not hold (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.