Why Bed Bath & Beyond Stock Plunged Today

What happened

Shares of Bed Bath & Beyond (BBBY -14.20%) sank on Tuesday, reversing some of their recent gains. By the close of trading, the retailer’s stock price was down more than 14%.

So what

Before today, Bed Bath & Beyond’s shares had soared 124% over the prior month. It appears to have gotten caught up in the latest meme stock craze. Other companies popular among individual traders, such as GameStop and AMC Entertainment, have also seen their shares surge in recent weeks amid the buying frenzy.

Yet Baird analyst Justin Kleber believes Bed Bath & Beyond has rallied too far, too fast. On Tuesday, Kleber cut his rating on its stock from neutral to underperform. He sees its share price falling roughly 60% to $4.

Kleber believes traders drove up the struggling retailer’s stock price beyond what could be justified by the fundamental value of its business. As evidence, he noted Bed Bath & Beyond’s steep market-share losses and negative cash flow.

Now what 

Bed Bath & Beyond reported brutal fiscal 2022 first-quarter results in late June. Its revenue plummeted 25% year over year to $1.5 billion, driven by a 23% plunge in comparable-store sales. The company generated a net loss of $358 million, which was far worse than the $51 million loss it suffered in the year-ago period. It also burned through $488 million in cash during the quarter. 

These poor results provide little justification for the recent rally in Bed Bath & Beyond’s shares. Instead, they could provide fuel for a far steeper downturn in its stock price in the days and weeks ahead, particularly if the company also reports weak second-quarter results next month. 

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.