Bed Bath & Beyond stock is going haywire amid bankruptcy bets, short covering

·3 min read

Bed Bath & Beyond's stock continues to be whipped up into a speculative fervor as traders place bets the retailer somehow averts bankruptcy — triggering massive covering by short-sellers.

Shares popped 20% in pre-market trading on Thursday. If Bed Bath & Beyond's stock opened at current levels, shares would be up more than 150% since the opening price on Monday.

The stock — which has one of the most visited ticker pages on Yahoo Finance the past 24-hours — climbed 69% on Wednesday. This followed gains of 28% on Tuesday and 24% on Monday.

Short-selling data may help explain what's happening in the market for BBBY shares.

Bed Bath & Beyond short interest stands at $82.7 million, or a whopping 52.07% percentage of the outstanding shares per data from S3 Partners. The stock has the second largest short interest for stocks with over $10 million of short interest.

The wild advance this week comes as Bed Bath & Beyond didn't utter the world "bankruptcy" on its Tuesday morning earnings release. That has emboldened the bulls in the stock, causing the bears — aka short-sellers — to quickly cover their shorts, only creating more upward momentum in the stock.

And despite the optimistic trading activity, Bed Bath & Beyond has one foot in a retail grave that includes Sears, Circuit City and many others. So the hopeful could still be wiped out by Bed Bath & Beyond.

"BBBY has become less institutional and more retail on the long side with large institutional activity on the short side (the vast majority of short selling is dome by institutions)," S3 Partners managing director Ihor Dusaniwsky explained. "This mix makes for a volatile stock since fundamentals are not the primary driver of price moves – the stock is becoming much more of a momentum and technical name— outsized and sudden price fluctuations will not be out of the ordinary (as we see in today’s stock price action). If the threat of bankruptcy becomes more of a certainty the prospect of a BBBY short squeeze becomes less and less, we can expect minimal short covering as short sellers wait for a $0.00 stock price."

Bed Bath & Beyond shares crashed 46% last week as the company said bankruptcy was on the table as it works to shore up its tattered balance sheet after the disastrous holiday shopping season.

A shopper carries her bags as she leaves a Bed, Bath, and Beyond in New York, June 23, 2010. The retail store is poised to report strong first quarter earnings boosted by steady demands with consumers investing in their homes again.  REUTERS/Keith Bedford (UNITED STATES - Tags: BUSINESS)
A shopper carries her bags as she leaves a Bed, Bath, and Beyond in New York, June 23, 2010. REUTERS/Keith Bedford (UNITED STATES - Tags: BUSINESS)

CEO Sue Gove reiterated on Tuesday that all options remain on the table to save the retailer.

Bed Bath & Beyond's quarterly sales crashed 33% from the prior year, leading to a $225 million adjusted operating loss. The company ended the holiday quarter with only $153.1 million in cash on the balance sheet, a position that has vendors nervous to the point they are withholding shipments to the company or raising credit terms.

In an approximately 10-minute earnings call with no analyst questions, Gove outlined $80 million to $100 million more in cost cuts. Aside from 150 store closures, the company plans to lay off even more corporate workers.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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