Is This Meme Stock Investable?

Make no mistake about it, GameStop (GME) is the undisputed king of meme stocks. 

Its legendary short squeeze in 2021, will go down in stock market history as one of the most manic scenes in trading. Shares moved from $17 to $483 in less than a month. 

One of the winners of that trade was Ryan Cohen, who has nearly a 12% stake in the company.

And while Gamestop hasn’t done much but it’s still holding a valuation north of $11B. 

Just a few weeks ago Cohen and his investment partners took an interest in another meme stock, Bed Bath & Beyond (BBBY)…

Since its height in 2013 at $80 a share, shares of Bed Bath & Beyond bleed away as the company struggled to retain customers. Management’s go-to-strategy of ‘20% off’ coupons simply didn’t cut it.

Like GameStop, the company was left for dead.

Yet, things have gotten interesting of late.

While not as popular as GameStop, Bed Bath & Beyond garners more than 2x the searches of the #3 stock in the specialty retail category by financial pros.

With more than 20% of the shares sold short, Bed Bath & Beyond is constantly at risk of sudden pops higher on a short-squeeze.

But does that mean it’s worth owning?

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Bed Bath & Beyond (BBBY) Business

Bed Bath & Beyond  (BBBY) is a retailer which specializes in home goods and accessories. The company sells a range of domestics merchandise, including bed linens, bath items, kitchen textiles, kitchen and table items, and basic housewares just to name a few. 

Products are sold both online and in stores. BBBY has 834 Bed Bath & Beyond stores in 50 states. It also owns the buybuy Baby brand, which has 132 stores (as of Feb 27, 2021). 

BBBY operates through two segments, North American Retail and Institutional Sales.

Comparable store sales were down 7% YoY in the most recent quarter driven by supply chain related issues.

However, as noted above, the company’s buybuy Baby brand continues to grow in the mid-teens.

The firm has made incredible progress with its Beyond+ loyalty program, which now has more than 2M subscribers, as of Q3’ 2021.

In March of 2022, RC Ventures took a near 10% stake in BBBY. RC Ventures is an activist investor who is led by Ryan Cohen, the former founder and CEO of Chewy.com (CHWY), and current Gamestop (GME) Chairman. 

RC Ventures believes its path to profitability could come from its buy buy BABY brand. BABY is expected to hit $1.0B in revenues by fiscal year 2023, with a double digit growth profile, and a large online presence. 

RC Ventures believes if BBBY can narrow its focus and spin off its buybuy BABY business, the company will begin to thrive again. 

Financials

BBBY has been a victim of the pandemic getting hit with a double whammy—supply chain disruptions and shutdowns over the last two years. 

And that’s reflected in the firm’s revenues which have shown a decline over the last three years. 

However, the firm’s gross margin has been steady which might mean that 

BBBY has a current ratio of 1.58. That means its assets are 1.58 times greater than its short-term liabilities. 

Moreover, BBBY has a quick ratio of 0.73. That means its highly liquid assets are 0.73 times greater than its short-term liabilities. 

One concern investors have is its debt-to-equity ratio which sits at 2.11. The company uses $2.11 for every $1 of equity. 

It will have to make some strategic moves, potentially some outlined by RC Ventures if it wants a turnaround.  

Valuation

BBBY has net income which is negative. And while that is a significant concern investors have, a few positives still remain. 

For example, the firm has a price-to-sales ratio of .24, which is much smaller than the industry average of .96. Furthermore, its enterprise-to-sales ratio is .52, which is lower than the sector median of 1.25. 

At a gross profit margin of 35.87%, BBBY does not do as well as some of its competitors like Restoration Hardware (RH), Sleep Number (SNBR), Haverty Furniture (HVT), or the Aaron’s Company(AAN). 

Plus, it’s hard to get behind a company that can’t turn a positive cash flow.

Our Opinion – 5/10

BBBY seems to have received a new lease on life thanks to RC Ventures’ involvement with the firm. The truth is, the company is struggling, but it does have some interesting pieces, specifically, buybuy BABY.

Getting involved at these levels in our opinion is a 50/50 proposition. It could work because of Ryan Cohen’s involvement, but it could also continue to spiral under control. 

Furthermore, other players in the space like RH offer a more attractive buying opportunity. And that’s why we’d rather wait to see signs of a turnaround in BBBY before investing.