Investors spent $200 million on ‘worthless’ Bed Bath & Beyond shares

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In the latest manifestation of the meme stock craze, investors have spent nearly $200 million trading theoretically worthless shares in Bed Bath & Beyond since the homewares retailer filed for bankruptcy in early May.

Bed Bath & Beyond was one of the few unloved consumer brands that became popular among retail investors during the coronavirus pandemic, with small investors taking to social media to drive up share prices well above what most professionals consider reasonable. arranged.

Many companies used this euphoria as an opportunity to prop up their dysfunctional businesses by issuing new shares, but Bed Bath & Beyond ultimately filed for Chapter 11 bankruptcy protection earlier this year and was cleared.

Still, an average of 18 million shares of the company have changed hands every day on over-the-counter markets since then, according to Bloomberg data. Users of the Reddit website have been sharing extreme speculation about possible turnaround plans for the retailer.

The trading activity comes in an unexpectedly strong year for US stocks, with the Nasdaq Composite posting its strongest first half in 40 years despite huge increases in interest rates, raising concerns that the market has turned to froth. And the valuation is very high.

“It is an extension of the meme stock phenomenon, almost a mutation,” said Anthony Chukumba, an analyst at Loop Capital Markets who previously covered Bed, Bath & Beyond.

“We can have a real debate about the value of Tesla or GameStop in that case, given that it’s still a viable company,” he said, referring to other stocks favored by retail investors. “We can’t argue about the value of Bed Bath & Beyond because we know what that value is.”

In its initial bankruptcy filing in May, Bed Bath & Beyond reported debt of $5.2 billion, while total assets were only $4.4 billion. Shareholders will be last in line to receive any payments from the sale of its business.

More than 12,000 stocks are traded on the US’s main over-the-counter exchange, which is operated by OTC Markets Group. The exchange is divided into three markets, with the riskiest and least regulated stocks traded on the “pink open market” – so-called because of the colored pink sheets on which the quotes were published.

When a company declares bankruptcy, it is delisted from major exchanges and its stocks trade on the Pink Sheets for a fraction of their original value. “These stocks will be hiding around until the bankruptcy estate is settled, which could take months or years,” said Steve Sosnik, chief strategist at Interactive Brokers.

Whether shareholders get anything at the end of bankruptcy proceedings depends on whether bondholders, who get paid before equity holders, can recover their money.

However, Bed Bath & Beyond’s bonds are trading for less than 2 cents on the dollar. “The bond market is telling you that stocks are worthless,” Sosnik said.

As of last week, the company no longer even owned the Bed, Bath & Beyond name. Online retailer Overstock.com bought its intellectual property for $22 million and announced plans to relaunch the brand, sending its own shares up more than 60 percent.

But that hasn’t stopped enthusiasts from driving its share price up nearly 300 percent since the delisting of original Bed Bath & Beyond. Last month’s average daily trade value was $4.8 million.

It’s not the only business that recently went bankrupt to attract interest. Investors also traded hundreds of millions of dollars worth of shares in collapsed lenders First Republic, Silicon Valley Bank and Signature Bank, though none match Bed Bath & Beyond in popularity.

There is also occasional mention on the Reddit board of Hertz, whose shares plunged when it filed for bankruptcy protection in 2020 but then rebounded during the retail trading frenzy that allowed it to raise money and restructure.

The original meme stock boom in January 2021 was rooted in anti-establishment anger, with retail traders seeking to destabilize hedge funds by betting against fan-favorite stocks. The sudden increase in demand resulted in a “short squeeze”, which accelerated the share price as hedge funds struggled to cover their positions, with Melvin Capital being the most affected. However, now retail bookies are placing bets against each other.

“There are no institutions that are shorting Bed Bath at 25 cents,” said Chukumba of Loop Capital. “There’s no ‘guy’ to stick it out anymore.”