Bed Bath & Beyond (NASDAQ:BBBY) stock fell beyond its latest short squeeze as reports of a possible bankruptcy sent shares of BBBY stock down 8% in pre-market trading.
BBBY fell 30% on Jan. 13 and opened Jan. 17 at $3.51 per share. That put the market cap barely above $400 million. The company had sales of more than $6 billion last year.
Beyond Hope
The latest bad news comes from a name familiar to troubled retailers, Sycamore Partners. Sycamore has sucked the last drop of cream from many retailers in the past, including Talbots, Nine West, Belk, Aeropostale, Jones New York and Staples.
Now the hedge fund run by Stefan Kuluzny is reportedly eyeing Buy Buy Baby, BBBY’s baby goods chain. As BBBY stock was falling last year, Buy Buy Baby was seen as a valuable lifeline to solvency. But sales there fell by about 20% in the most recent quarter, while the parent firm’s sales fell by one-third.
Banks and other analysts have been warning for months that Bed Bath and Beyond faces a cash crunch. Vendors are now abandoning their support as bankruptcy seems just weeks away. Suppliers usually send goods to stores expecting payment in 90 days. Incipient failure tells them they should demand cash on delivery.
As traders weighed liquidity concerns, one JPMorgan analyst held to a “neutral” rating on the stock, suggesting it may take longer than anticipated to work through any bankruptcy. Christopher Horvers wrote, “the stock is trading on liquidation considerations and not valuation.”
While some traders at Stocktwits were still insisting they’re not selling early on Jan. 17, most seemed convinced the latest short squeeze is over and final chords are sounding for the stock.
What Happens Next for BBBY Stock?
There is an industry of people that exists to take out and break up failing companies. Small traders don’t have the capital needed to play the game.
While there are opportunities in short squeezes, these are limited. You have to be willing to take a gain and sell rather than wait for a stock to go “to the moon.” The tighter the squeeze, the higher the risk for those who are long that their trade will end in tears.
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On the date of publication, Dana Blankenhorn 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.
