BBBY stock: should I buy the dip?

The Bed Bath and Beyond (NASDAQ:BBBY) share price is all over the place. Would Paul Summers invest in BBBY stock today?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Middle-aged white man wearing glasses, staring into space over the top of his laptop in a coffee shop

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Any UK investors who keep an eye on the US market may have noticed the rollercoaster ride of Bed Bath and Beyond (LSE: BBBY) shares recently. What is this company and why has performance been so erratic? And should I actually consider buying BBBY stock today?

What’s going on here?

Bed Bath and Beyond sells a range of merchandise in the home, baby, beauty and wellness markets. It’s one of the largest such businesses in the US.

Like many listed companies, BBBY stock performed well following the March 2020 plunge. Indeed, I would have made multiple times my money if I’d invested as we were sent indoors for the first time and held until late January the following year. At this point, it traded at over $50 a pop.

From here, however, the vast majority of these gains evaporated. At the end of July, BBBY stock changed hands for roughly $5. That’s not really surprising given its awful Q1 update the month before.

Even so, the more recent share price action has been compelling to watch. BBBY rocketed more than 300% in the first two weeks of August before crashing again last week. Some people made an absolute fortune by trading it.

So, is BBBY stock now a screaming buy?

The stock now trades at $11. As tempting as it might be to think that history will repeat itself, I’m not inclined to ‘buy the dip’ here for a couple of reasons.

First, the most recent explosive rise in the share price doesn’t appear to be due to anything that Bed Bath and Beyond is doing as a business. Rather, it was probably due to a short squeeze.

Short squeezes happen when those who are betting that a company’s share price will fall will rush to close their positions. In this case, the catalyst appears to be a buying campaign orchestrated on the popular WallStreetBets (WSB) forum on Reddit. The name probably rings a bell. It was behind the enormous gains seen in meme stocks Gamestop and AMC during the pandemic.

Of course, a sudden jump in any company’s share price is often followed by a period of heavy selling as traders take profits. That’s arguably what we saw here last week, especially after billionaire investor Ryan Cohen sold his 10% stake.

Do I really want to expose myself to that kind of volatility? I don’t think so, at least with money I can’t afford to lose.

Second, I can’t help but think that the tough times will continue for Bed Bath and Beyond. Is there anything I can get at this retailer that I can’t easily obtain elsewhere? Again, I’m not convinced. And it’s this lack of firm competitive edge — or ‘economic moat’ to quote Warren Buffett — that makes me wary.

Not Foolish

As an investor, I’m keen to pick up stock when it trades at a discount to what it’s truly worth. But I don’t just throw my cash at anything, especially when it’s become a plaything for traders. I’m looking for firms generating great margins and high returns on the money (my money) management put to work in the business. Why take a risk here when there are a lot of great British companies doing just this?

I’m reaching for my bargepole.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Investing Articles

Will it be too late to buy Nvidia stock in March?

NVIDIA stock is up more than 60% since the start of 2024. Our writer considers whether it might still be…

Read more »

Typical street lined with terraced houses and parked cars
Investing Articles

Why did Direct Line shares just soar 27%?

Direct Line shares have jumped more than a quarter in the course of today's trading session. Our writer explains why…

Read more »

Close-up of British bank notes
Investing Articles

These 2 shares are Dividend Aristocrats. Which should I buy this March?

Our writer likes the business model of this pair of FTSE 100 Dividend Aristocrats. So why would he only consider…

Read more »

Frustrated young white male looking disconsolate while sat on his sofa holding a beer
Investing Articles

I bought 49 Unilever shares in June. Here’s what they’re worth today

Harvey Jones bought a modest amount of Unilever shares last summer hoping the stock would soon recover. He's having to…

Read more »

BUY AND HOLD spelled in letters on top of a pile of books. Alongside is a piggy bank in glasses. Buy and hold is a popular long term stock and shares strategy.
Investing Articles

I reckon these shares, potentially 20% undervalued, are Warren Buffett’s type of investment

Oliver Rodzianko thinks Games Workshop is an absolutely stellar investment. As it's potentially undervalued, he reckons Warren Buffett would agree.

Read more »

Calendar showing the date of 5th April on desk in a house
Investing Articles

Great investing habits that can boost my Stocks and Shares ISA

Forget complicated calculations and financial jargon! Our writer uses a few simple habits to build wealth inside his Stocks and…

Read more »

Young Asian woman with head in hands at her desk
Investing Articles

Why has the St. James’s Place share price crashed 30%, after FY results?

The St. James's Place share price has just fallen off a cliff. What could have gone wrong in 2023 that's…

Read more »

Family in protective face masks in airport
Investing Articles

Here’s how much I’d have if I’d bought 1,000 Rolls-Royce shares 10 years ago

Rolls-Royce shares may be flying high this year but that wasn't always the case. I'm calculating how much I'd have…

Read more »