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Since its bankruptcy in May, Bed Bath & Beyond has seen almost $200 million worth of trading activity in shares that are considered worthless, fueling the meme stock craze.
Bed Bath & Beyond, along with other neglected consumer brands, gained popularity among retail investors during the pandemic. Retail investors, organizing via social media, pushed share prices far above rational levels. Despite filing for Chapter 11 bankruptcy protection and being delisted, an average of 18 million shares of Bed Bath & Beyond have been traded daily on over-the-counter markets. Users on Reddit have shared highly speculative theories about the retailer’s potential turnaround plans.
This trading activity comes during a strong year for US stocks, but concerns arise about frothy markets and high valuations. Anthony Chukumba, an analyst, describes this phenomenon as an extension of the meme stock trend but highlights the difficulty in valuing Bed Bath & Beyond due to its known value.
Following its bankruptcy filing, Bed Bath & Beyond reported $5.2 billion in debt and just $4.4 billion in assets, leaving shareholders at the bottom of the payout hierarchy. The stock now trades on the Pink Open Market, the riskiest and least regulated segment of the OTC exchange.
During bankruptcy proceedings, bondholders take precedence over equity holders, and in the case of Bed Bath & Beyond, the bonds are trading at less than 2 cents on the dollar, suggesting the stock’s worthlessness. The company has also lost its name to Overstock.com, which purchased its intellectual property for $22 million.
Despite these circumstances, retail investors continue to drive up Bed Bath & Beyond’s share price, along with the shares of other bankrupt businesses like First Republic, Silicon Valley Bank, and Signature Bank. Hertz, which experienced a similar frenzy during its bankruptcy protection period in 2020, is also occasionally mentioned on Reddit boards.
The original meme stock surge in January 2021 targeted hedge funds, but the current trend is characterized by retail investors betting against each other rather than institutional players. The absence of a common adversary has changed the dynamics of the trading landscape.
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