They’re STILL shorting BBBY. Squeeze em’!
After rising 29% on Tuesday, Bed Bath & Beyond stock (BBBY) was up another 31% in Wednesday afternoon trading to $27.02. Unlike on Tuesday, though, the rally didn’t extend to other meme stocks. Shares of GameStop (GME) and AMC Entertainment (AMC) were down 1.3% and 7.7%, respectively.
Ihor Dusaniwsky of short-selling analytics firm S3 Partners told that his firm estimates Bed Bath’s short interest at $70.22 million, or 55% of shares available for trading.
“We’ve seen an increase in shares shorted even as BBBY’s stock price has soared recently,” Dusaniwsky wrote in an e-mail. “This does not mean that there has not been a short squeeze in BBBY, because there have been many short sellers who have trimmed or closed out their positions due to excessive recent mark-to-market losses. It means that there are short sellers coming in to replace those that are exiting their trades.”
Short sellers borrow stock, then sell it. Their hope is that the price declines so that they can buy the same equity at a lower price to repay the stock and pocket the difference between the sale price and the later purchase price. It’s a risky strategy because a stock can rise infinitely, whereas a long investment has limited downside, since a stock can only fall until it hits zero. Short sellers must also pay interest on the value of the stock borrowed, known as a stock borrow fee.
When it comes to Bed Bath & Beyond, short sellers are facing a tough time finding shares to short, Dusaniwsky says. The stock borrow fee for existing Bed Bath short positions is 13.6%, while new stock borrows face a 50% fee, according to S3. The average S&P 500 stock has a 0.57% borrow rate per year, according to Dusaniwsky. To short $1,000 in Bed Bath stock, an investor would currently have to pay $500 a year or $1.39 a day, compared with a fee of $5.70 a year or 2 cents a day for the average S&P 500 stock.
When highly shorted stocks rise, short sellers can spark even more buying demand because they rush to buy stock to close their short positions. That’s why retail investors piled into shares of highly shorted firms like GameStop and AMC Entertainment in January of 2021. That event, which sent GameStop stock parabolic, began around the time Chewy co-founder Ryan Cohen and two of his associates joined GameStop’s board. Cohen, now GameStop’s chairman, is an activist investor at Bed Bath and won three board seats in March.
Bed Bath short sellers short sellers were down $179 million in mark-to-market losses on Wednesday, based on this morning’s 25% gain, and $688 million in August. For the year, the shorts were down $586 million.
“We expect the BBBY short squeeze to continue as mark-to-market losses continue to mount and more new short sellers get in at these higher stock prices looking for a whipsaw of stock prices down,” Dusaniwsky added.
Short sellers have been betting against the stock amid concerns the retailer could face a liquidity crunch. Bed Bath was one of seven companies Barron’s identified last week because of its need to refinance its debt or borrow more. The company said it had $1 billion available in its revolving credit facility.
“We have already taken actions on many fronts—including a reduction of at least $100 million of [capital expenditure] against the company’s original plan,” a company representative said.
That doesn’t mean Wall Street is optimistic. B. Riley analyst Susan Anderson on Tuesday downgraded Bed Bath stock to Sell from Neutral, arguing the current valuation is “unwarranted.” She has a $5 price target.
Bed Bath shares are now up more than 400% over the last month, though they’ve still fallen 1% over the last 12 months.
Submitted August 18, 2022 at 03:55PM by CallieCallie86
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