Shares in US-based home goods retailer Bed Bath & Beyond (NASDAQ: BBBY) are getting quite a bit of attention from UK investors at the moment. Last week, the stock was among the top 20 most-bought stocks on Hargreaves Lansdown’s investment platform.
Is this a stock I should consider for my own portfolio? Let’s take a look.
Bed Bath & Beyond stock: worth buying?
Looking at the investment case for Bed Bath & Beyond, there are a few things that immediately jump out at me. The first is that the company is really struggling right now.
In its most recent results for the three months ended 28 May, the group posted sales of $1,463m, down 25% year on year. Meanwhile, it posted a net loss of $358m, compared to a loss of $51m a year earlier.
Looking ahead, Wall Street analysts expect the company to record a net loss of $469m for the year ending 26 February 2023. They then expect a net loss of $257m for the following year.
One reason the company is struggling is that it sells discretionary (non-essential) products. And in the current financial environment, consumers are cutting back on these kinds of products.
Short sellers are targeting the stock
The second thing that jumps out here is that short interest is eye-wateringly high. Right now, my data provider shows that around 50.5m Bed Bath & Beyond shares are on loan – representing roughly 63% of the free float. This tells me that a lot of hedge funds and other sophisticated investors expect the stock to fall.
I suspect the short sellers are focusing on the company’s cash burn and risk of bankruptcy. Last quarter, cash flow from operations was -$400m.
Now, highly-shorted stocks can sometimes actually produce explosive returns if there’s a ‘short squeeze’. We’ve seen this in the recent past with GameStop and AMC Entertainment.
However, I’d never buy a stock just because it could potentially see a short squeeze. I prefer to focus on the fundamentals of the business. And if I see a highly-shorted stock, I tend to steer clear because short sellers are some of the smartest minds in the business.
Ryan Cohen sold out
One other thing that’s worth noting here is that entrepreneur and activist investor Ryan Cohen, who invested a large amount in Bed Bath & Beyond shares early in 2022, has recently offloaded his entire stake in the company (generating a profit of around $70m). I don’t know why he sold out of the stock. But he may have been concerned that there was limited share price upside here.
Putting this all together, the stock looks quite risky to me.
My move now
It’s worth pointing out that there are a few positives here. For example yesterday, the company said it had secured more than $500m of new financing. This should help strengthen its balance sheet.
There has also been a bit of insider buying recently. In July, interim CEO Sue Gove invested $230,500 in stock (when it was near $4.60).
However, weighing everything up, my overall impression is that Bed Bath & Beyond is a risky, speculative stock. I think there are better stocks I could buy today.