Is bankruptcy coming for Bed Bath & Beyond (NASDAQ:BBBY)? For many investors, that question has been looming since yesterday when news broke that the company is considering Chapter 11. Yesterday, BBBY stock enjoyed a social media hype-driven rally as investors bet against the bankruptcy. Today it is falling again as the dust settles and reality sets in.
However, the prospect of bankruptcy may not be so far away. According to The Wall Street Journal, the struggling retailer could begin the filing process as soon as this coming weekend, specifically by April 22. This could be the final nail in the coffin for a company that has hung on for far too long.
After months of decline, has Bed Bath Beyond finally reached the point of no return? Let’s take a closer look at the recent bankruptcy updates and assess what investors can expect over the next few days.
BBBY Stock: Is This the End?
As all meme stock rallies inevitably do, Bed Bath & Beyond’s recent surge has run out of momentum. BBBY stock has been falling all day after two days in the green. As of this writing, it is down more than 23% for the day, and there’s nothing to suggest a turnaround is likely. The lesson from this is clear; speculative trading can’t keep a stock elevated when the company is facing significant problems. And this one is facing more headwinds than most. Per The Wall Street Journal:
“The embattled retailer recently said it needed to raise $300 million from share sales by April 26 to stay out of chapter 11. The company will have to stop selling stock by that date, when it would lose eligibility to continue under its share registration documents. Given the stock’s closing price on Wednesday of 46 cents, Bed Bath & Beyond faces long odds to raise that amount of money within that time.”
While the race isn’t technically over yet, it certainly seems that the end is near for this troubled company. Bed Bath & Beyond has asked shareholders to vote on a reverse stock split proposal on May 9, but the retailer may not even make it that long. Until now, nothing it has done has worked to raise the funds it needs to remain in business. A lucrative merchandise agreement hasn’t helped the company, nor has securing an equity lifeline investment. Through it all, BBBY stock has trended downward, and even the possibility of activist investor Ryan Cohen getting involved again hasn’t helped it demonstrate any real growth.
Even if the company somehow averts bankruptcy this time around, there’s no reason to bet on the stock but plenty to bet against it.
Bed Bath & Bankrupt
As InvestorPlace contributor Dana Blankenhorn notes, even as bankruptcy looms larger than ever, some retail traders are still eyeing BBBY stock as a potential short squeeze.
This doesn’t mean the company can be saved, even if a social media rally can temporarily push shares up. Bed Bath & Beyond has proven that it can’t remain competitive in a market that is moving forward without it. Investors should be careful to see the bigger picture when it comes to this troubled meme stock; the company has failed to innovate and remain competitive.
No matter what the chatter on r/WallStreetBets may be, the stock will only keep falling as the company prepares for bankruptcy, which is still the most likely scenario.
On the date of publication, Samuel O’Brient 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.
