With the market expecting such a development over the past few months, the official news has had less of an impact on the price of BBBY stock than you would think.
Instead of cratering by a high double-digit amount on the news, BBBY fell by 35.7% right after the announcement. The stock is still hanging in there with some value, changing hands for around 19 cents per share).
However, don’t assume that the dust has settled, and that there’s an opportunity to grab a quick profit from this latest victim of the “retail apocalypse.”
While trading for less than a quarter, shares are likely not even worth a penny. At least, based on how things stand to play out from here.
|BBBY||Bed Bath & Beyond||$0.20|
Don’t Count on a ‘Beyond’ After This Chapter 11 Filing
Given that this company has filed for Chapter 11 bankruptcy rather than Chapter 7 bankruptcy, at first you may assume that the company is merely reorganizing rather than liquidating.
However, while a Chapter 7 bankruptcy is the most straightforward way for a failed business to liquidate, liquidation plans are permissible under Chapter 11.
That’s the plan with Bed Bath & Beyond. The retailer intends to “implement an orderly wind down of its business,” as stated in its press release, announcing the bankruptcy.
The company will close its stores, liquidate its inventory, and sell off any other tangible or intangible assets.
BBBY does not intend to stay and business and recapitalize, with creditors swapping some of all of their claims for equity in the business. After the liquidation and repayment of creditors, this entity will no longer exist. Hence, no “beyond” after this Chapter 11 filing.
Because BBBY stock continues to trade for more than zero, it’s clear many speculators are not aware of this. Or, if they know that this is a liquidation scenario, they erroneously believe shareholders will get something out of it.
A Bad Bankruptcy Bet
In recent years, retail traders have become more active in bankrupt stocks. A big reason for this was the outcome for common shareholders with Hertz Global Holdings (NASDAQ:HTZ), which entered bankruptcy in 2020, and left in 2021, thanks to the post-pandemic travel recovery.
But similar bankruptcy bets have been busts. Last year’s Revlon (OTCMKTS:REVRQ) bankruptcy is a good example. Traders bid up the cosmetics company after its Chapter 11 bankruptcy, on the view that it was going to be the “next Hertz.” Unfortunately, this did not happen. Revlon played out like your standard Chapter 11 restructuring.
In the end, creditors took ownership, with common shareholders receiving nothing. It practically guaranteed a similar total wipeout outcome with BBBY stock.
The company has $5.2 billion in liabilities. With the book value of its assets totaling just $4.4 billion, creditors are likely to take a haircut.
With this, do not count on there being something left over for BBBY shareholders. That’s not to say that shares will head immediately to near-zero prices. However, a gradual drop toward much lower prices is undoubtedly in store in the weeks and months ahead.
Stay Away is All There’s Left to Say
It won’t be long before BBBY stops trading on the Nasdaq exchange. As InvestorPlace’s Larry Ramer recently wrote, the company expects to soon receive a delisting notice from Nasdaq which it intends to contest.
Once delisted, trading in the stock will move to the over-the-counter (or OTC) market.
This event will probably drive the next big drop for Bed Bath & Beyond shares. Stocks typically decline in price when moving down to the OTC market from a major exchange.
“Beyond” that, it won’t be long until BBBY will make its last big leap into the stock market graveyard. Once the liquidation is complete, and creditors are (partially) repaid, there will be absolutely nothing left.
It’s been a long time coming, but Bed Bath & Beyond’s fate is now fully sealed. With this, stay away is all there’s left to say with BBBY stock.
On the date of publication, Thomas Niel 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.