Some folks might fantasize about being a meme-stock hero, but it’s a dangerous game to play. Before you consider buying Bed Bath & Beyond (NASDAQ:BBBY) stock, be sure to conduct your due diligence on the company. In short order, you’ll find that Bed Bath & Beyond is a troubled brick-and-mortar retailer with major financial issues.
As we’ll see, there are signs that Bed Bath & Beyond is falling apart at the seams. Informed investors might even question whether the company can continue much longer as a going concern. Indeed, the Bed Bath & Beyond share price can fall much further this year. Here are three reasons to stay out of the trade completely.
BBBY Stock Lost 50% of Its Value in February
Those who live by the meme might end up dying by the meme. It’s a harsh reality that some ill-timed traders learned the hard way as BBBY stock fell 50% in the month of February.
It’s a painful but practically inevitable ending to a bizarre tale. Bed Bath & Beyond shares gained 98.9% and topped out at $52.89 on Jan. 27, 2021. This was based almost entirely on meme-stock fervor, and wasn’t justified by the company’s poor fundamentals.
As Bed Bath & Beyond closed its Canadian stores under Canada’s equivalent of Chapter 11 bankruptcy protection, BBBY stock traders must have seen the writing on the wall. And that writing warned, “Get out now!”
Making Some Interest Payments Isn’t an Impressive Feat
Not long ago, Bed Bath & Beyond announced in a press release that it paid off some of the interest on its debt. Bear in mind, we’re not talking about paying down the principal, just some of the interest that has accrued.
Still, some overeager traders might claim that this is a really good sign for Bed Bath & Beyond. Let’s be careful, though. The company posted some interest payments on Feb. 28 that were due on Feb. 1. That’s nearly a month late, and it’s not encouraging.
Besides, Bed Bath & Beyond now has to continue paying interest, and eventually the principal, on debt in the form of “3.749% Senior Notes due 2024, 4.915% Senior Notes due 2034 and 5.165% Senior Notes due 2044.” Those aren’t necessarily sky-high interest rates, but the due payments can add up quickly.
Bed Bath & Beyond’s Future Financing Is Jeopardized
Another reason not to touch BBBY stock with a 10-foot pole is that it has fallen so far that it could negatively impact Bed Bath & Beyond’s future ability to acquire financing. It’s a complex situation, but financial traders need to be aware of this.
For the full story, I recommend that you read InvestorPlace Financial News Writer Samuel O’Brient’s report on Hudson Bay Capital’s precarious financial lifeline to Bed Bath & Beyond. As Bloomberg observed, Hudson Bay provided Bed Bath & Beyond “with $225 million upfront, with the promise of another $800 million over the coming eight months.”
Here’s the catch, though. Future rounds of financing from Hudson Bay “are contingent on Bed Bath & Beyond maintaining a weighted average stock price of at least $1.25 or $1.50, depending on the timing.” Recently, BBBY stock fell below $1.50. So, don’t count on Bed Bath & Beyond getting another capital infusion anytime soon from Hudson Bay.
Plus, other prospective financiers might be wary, as well. It’s yet another red flag for Bed Bath & Beyond in 2023, and it’s only March. All in all, it’s wise for investors to pick another business to bet on besides 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.