Ryan Cohen’s stock sale isn’t a problem for Bed Bath & Beyond’s True Believers

A sensational rally at Bed Bath & Beyond Inc

BBBY -40.54%

The stock was halted last week when one of the company’s largest shareholders cashed out.

Now, a host of individual investors say they hope to ride out the worst of the selloff.

Even as Bed Bath & Beyond fell on Friday in its worst one-day pullback ever, individual investors continued to cheer the stock on social media platforms like Reddit, Discord and Twitter..

Many posted a diamond and hands emoji – shorthand on the Internet for someone who stands firm in their investments even when there is mounting pressure to sell. Others tagged their posts with “HODL”: hold on for dear life.

Their message to the world? We do not give up.

Wil Lobach, a 39-year-old investor from New Jersey, said he hopes to use the selloff as a way to add to his Bed Bath & Beyond holdings.

He owns more than 250 shares of the struggling retailer. Having accumulated them at an average price of about $6.50, he is still about 70% above his initial investment. Shares of Bed Bath & Beyond fell 41% on Friday to $11.03.

SHARE YOUR THOUGHTS

What is your outlook on meme stocks? Join the discussion below.

Mr. Lobach said the stock’s volatility last week did little to scare him. It also owns stakes in meme stock GameStop Corp.

and AMC Entertainment Holdings Inc.

which are both known for their wild swings.

“I’m proud of him,” Mr. Lobach said of billionaire investor Ryan Cohen, whose sale of his stake triggered a selloff in Bed Bath & Beyond shares last week.

Cohen’s army is right behind him, Mr. Lombach added, noting that he supports the sale and believes that Mr. Cohen is not done with Bed Bath & Beyond yet. “It was incredible to be a part of this moment in history.”

Mr. Cohen, the co-founder of pet retailer Chewy Inc.

, has developed a devoted following of individual investors, who cheered his rapid rise last year from activist investor to chairman of GameStop. Many people piled into Bed Bath & Beyond shares after it disclosed a significant stake in the company in March and issued a letter to its board of directors pushing for major changes.

David Simpson, a 30-year-old from Seattle, said he is committed to keeping his investment in Bed Bath & Beyond at least through 2023, by which time he believes the stock will have risen to around $200.

After years of declining sales, Bed Bath & Beyond is facing an existential crisis. The WSJ’s Suzanne Kapner explains why the company has fallen on hard times and looks forward to what’s next for the veteran retailer. Photo illustration: Laura Kammermann/WSJ

He was unfazed by the news that Mr. Cohen had sold his stake. In fact, he says his belief in the Bed Bath & Beyond business has only grown stronger. He cited Mr. Cohen’s role in growing Chewy from a small startup to a company that would later be acquired by PetSmart for $3.35 billion, a deal that at the time was the largest e-commerce acquisition ever.

“My gut tells me the same is true” of Bed Bath & Beyond, Mr. Simpson said, adding that he believes the company will be able to strengthen its financial position by the end of the year.

Bed Bath & Beyond is seeking a $375 million loan to generate cash and help pay down debt, the Wall Street Journal previously reported. In June, the company said sales for the current quarter were trending down 20% from the previous period.

The determination of individual investors is the latest twist in a craze for meme stocks that has lasted far longer than many professional investors and analysts could have predicted. Some individual investors say they have good reason to believe stocks will bounce back.

Many also continue to hold out for what they believe will be a massive short squeeze, a phenomenon that occurs when a stock rises so much that investors who bet against it are forced to buy back shares, driving the stock even higher.

Right now, those betting on the stock face an uphill battle.

On Friday, the selloff that hit Bed Bath & Beyond spread to other meme stocks, with GameStop losing 3.8%, AMC Entertainment off 6.6% and Coinbase Global Inc..

down 11%. The S&P 500 closed down 1.3%.

The data also shows that pressure from short selling has continued to increase.

About half of Bed Bath & Beyond shares available for trading Friday afternoon were down, according to Ihor Dusaniwsky, head of predictive analytics at S3 Partners, a technology and data analytics firm.

“This has been a rollercoaster week,” Mr. Dusaniwsky said in an email, noting that the value of short sellers’ positions fell by hundreds of millions of dollars in the first half of the week, only to jump hundreds of millions of dollars on Thursday and Friday.

Wall Street analysts also warn that there could be more pain for shareholders.

Wedbush Securities analyst Seth Basham said he thinks Bed Bath & Beyond’s stock should trade around $5—down 55% from Friday’s close. He cut his rating on the stock to “underperform” from “neutral” in a note after Mr. Cohen made his plans to sell his stake public on Wednesday.

Even if the company succeeds in achieving goals such as solving inventory and supply chain problems, its stock has risen so much that the risk-to-reward ratio for investors remains “disproportionately skewed to the downside,” Mr. Basham added.

Shares of Bed Bath & Beyond are still up 122% for the quarter, compared with the S&P 500, which is up 12%.

Wells Fargo analyst Zachary Fadem, who covers Bed Bath & Beyond, maintains a $3 price target on the stock—73% below where it closed Friday.

Among Mr. Fadem’s concerns: Traffic at Bed Bath & Beyond stores and traffic to its Web site appear to be slowing. The company is also in a vulnerable position financially. It is working with outside advisers to try to strengthen its balance sheet.

“We believe the writing is on the wall that BBBY stock has once again become disconnected from economic reality,” Mr. Fadem said in a note.

There could be more pain for Bed Bath & Beyond shareholders, Wall Street analysts warn.


Photo:

Michael M. Santiago/Getty Images

Write to Akane Otani at akane.otani@wsj.com and Caitlin McCabe at caitlin.mccabe@wsj.com

Copyright ©2022 Dow Jones & Company, Inc. All rights reserved. 87990cbe856818d5eddac44c7b1cdeb8

Leave a Reply

Your email address will not be published. Required fields are marked *