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This year, household goods retailer Bed Bath & Beyond (NASDAQ:BBBY) faces substantial financial problems, and BBBY stock investors are deep underwater. Granted, the company hasn’t officially declared a Chapter 11 filing. However, it’s probably only a matter of time before Bed Bath & Beyond spirals into bankruptcy. So, if you’re a current shareholder, consider hitting the “sell” button before a bad situation gets worse.
Granted, Bed Bath & Beyond’s shareholders might get a quick boost if meme-stock traders stage a massive short squeeze. Yet, there’s no guarantee that this will happen. Besides, a short squeeze wouldn’t fix Bed Bath & Beyond’s fundamental problems.
Sometimes, investors just have to acknowledge a company’s issues and sell for a loss. It’s fine to root for an underdog, but this isn’t the time be a hero and risk your hard-earned capital on BBBY stock.
Vendor Consignment Program Doesn’t Bode Well for BBBY Stock
Bed Bath & Beyond’s reputation has deteriorated to the point that vendors are apparently hesitant to do business with the company. That’s the message I took away from Bed Bath & Beyond’s announcement of a “vendor consignment program” with ReStore Capital.
Here’s the lowdown. ReStore Capital will purchase as much as $120 million worth of merchandise from Bed Bath & Beyond’s “key suppliers.” This deal is intended to boost Bed Bath & Beyond’s inventory levels.
Bed Bath & Beyond can try to spin this event as a positive development. However, think about why Bed Bath & Beyond would need to bolster its product inventory. As a Barron’s report explains, “vendors fearing a potential bankruptcy filing have requested upfront payments and cut credit limits” with Bed Bath & Beyond.
In other words, the vendors see the writing on the wall, and Bed Bath & Beyond has serious reputational issues. So, even if Bed Bath & Beyond’s press release makes this event sound positive, it’s actually a major red flag for the company.
Bed Bath & Beyond’s Financial Issues Are Unmanageable
Should Bed Bath & Beyond’s vendors fear that the retailer will file for Chapter 11 bankruptcy protection? Let’s look at the facts. Bed Bath & Beyond’s most recently filed Form 10-Q (which covers data from late 2022) indicated that Bed Bath & Beyond had $1.03 billion of long-term debt and $5.2 billion of long-term liabilities.
Furthermore, Bed Bath & Beyond has been unprofitable for over a year now and has a track record of missing quarterly EPS estimates by a wide margin. Some analysts aren’t even bothering to cover Bed Bath & Beyond anymore. Morningstar analyst Jaime Katz does cover the company, but not with a positive outlook. Katz assigned a “$0 per share fair-value estimate on no-moat Bed Bath & Beyond,” and expects that the company “will eventually declare bankruptcy.”
Even the company seems to admit that it’s teetering on the edge of a Chapter 11 filing. Alarmingly, Bed Bath & Beyond acknowledged that the company “will likely file for bankruptcy protection” if it fails to receive the proceeds from a $300 million common stock share offering. That, by itself, should convince cautious traders not to invest in Bed Bath & Beyond.
What You Can Do Now
Given the preponderance of the evidence, Bed Bath & Beyond’s current shareholders have a tough decision to make. As bankruptcy looks imminent, even Bed Bath & Beyond’s staunchest investors should seriously consider bailing.
Even if you’re into meme stocks, don’t even think about buying BBBY stock now. Bed Bath & Beyond has poor financials and a shaky reputation with its vendors. So, set aside your meme dreams and invest in a company with better future prospects than Bed Bath & Beyond.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.