New Jersey-based retail chain, Bed Bath & Beyond Inc witnessed a massive jump in its shares on Tuesday amidst concerns that the company may soon file for bankruptcy. On Tuesday, the stocks of Bed Bath & Beyond Inc, listed on NASDAQ with BBBY ticker, surged by nearly 30 percent as rumors spread among retail investors that Bed, Bath & Beyond is at its weakest point and that it is a perfect acquisition target.
In Reddit subforums such as WallStreetBets, Redditors are having multiple conversations regarding the possibility of a merger and acquisition deal. These rumors triggered a buying frenzy for BBBY stocks on Tuesday.
As of 11 January. 13:06 EST, the stock is traded at 2.94
USD, up nearly 41 percent from the previous closing on Tuesday.
A similar “meme stock” phenomenon triggered massive jumps in stock prices of GameStop Corp and AMC Entertainment Holdings a few months ago. GameStop Corp and AMC Entertainment Holdings were also undergoing severe financial pressure during the stock surge.
According to stock market statistics, the stocks of Bed, Bath & Beyond Inc witnessed the biggest one-day percentage jump since 8th August. Refinitiv data suggests that stock traders exchanged more than 100 million dollars worth stocks of BBBY on Tuesday.
A few days ago, the stock plunged by nearly 30 percent as BBBY announced that it is doubtful whether it can continue doing business as usual. This announcement triggered concerns about bankruptcy and investors started selling stocks in large amounts.
The share buyback, severe financial crisis, and bankruptcy
The home furnishings and domestic merchandise company which was founded in 1971 has been suffering from a severe financial crisis for the past few months as increasing competition and issues with cluttered stores impacted the economics of the retail business.
The COVID-19 pandemic made things worse as the company decided to close nearly 200 stores.
In 2022, as macroeconomic conditions got more volatile, BBBY decided to close 150 stores that were underperforming in sales and revenue. The company also decided to reduce the supply chain and corporate staff by nearly 20 percent.
Increasing competition from businesses such as Walmart, Amazon, and Target has also been impacting the business prospects of BBBY.
Amidst a serious financial capital crisis faced by the company, Bed, Bath & Beyond Inc spent more than 11 billion dollars to buy back nearly 75 percent of its own stock. Various analysts consider this one of the biggest irrational decisions of management.
Mathematically, BBBY spent 44 dollars to buy back one share of the company. The actual share price of the stock trading on NASDAQ is just above 3 dollars. In August, October, and November 2022 alone, the company paid $2.68 million — more than $8 a share, more than 2.5 times its current price — to buy its own stock.
Various news reports state that the company will file for Chapter 11 bankruptcy in next few weeks.
