Insider buying tends to be a bullish indicator, particularly when multiple insiders are buying company stock simultaneously. This buying pattern – known as ‘cluster buying’ – can be a strong indication that a stock is undervalued.
Recently, we spotted an interesting cluster buying pattern at Bed Bath & Beyond Inc (BBBY:US). Bed Bath & Beyond is a US retailer that sells domestic merchandise and home furnishings. The company, which is listed on the Nasdaq and currently has a market capitalization of $383.7 million, operates nearly 1,000 stores across US, Canada, Mexico, and Puerto Rico, and also sells its goods online through a number of different websites. Is this insider buying a bullish signal then? Let’s take a look.
Insider Buying at Bed Bath & Beyond Inc
Our insider transaction data shows that on July 1, three insiders at Bed Bath & Beyond snapped up stock. Those who bought were:
- Interim CEO Sue Gove (50,000 shares @ $4.61 per share)
- Chair Harriet Edelman (10,000 shares @ $4.94 per share)
- Board member Jeff Kirwan (10,000 shares @ 4.90 per share)
Combined, the three insiders spent around $330,000 on BBBY stock.
Cluster Buying Pattern
Normally, we would see this buying pattern as a bullish development. When multiple insiders are buying company stock simultaneously, it indicates that insiders are in agreement that the share price is likely to rise. This is a valuable insight. After all, insiders are some of the most informed participants in the market.
Meanwhile, Ms. Gove – who has over 30 years of experience in the retail industry and is the founder of retail consulting firm Excelsior Advisors – has nearly doubled the size of her position with this purchase of stock. This suggests that she is very confident the stock, which has slumped over the last year, will climb from its current levels.
Short Selling Action
What concerns us in relation to Bed Bath & Beyond stock, however, is the short selling activity. Right now, 44.2 million BBBY shares are on loan. That represents around 55.3% of the free float, which is very high.
And the number of shares on loan is rising rapidly. When we last covered BBBY, on April 22, only 27.2 million shares were on loan (28.2% of the free float). That means the number of shares on loan has increased 56% in the space of a few months. This tells us that short sellers are aggressively ramping up their downside bets.
As for why the short sellers are targeting Bed Bath & Beyond, it’s most likely related to the company’s poor performance. In the most recent quarter, sales fell 25% year on year, while gross margin slumped to 23.9% from 32.4%. Net loss came in $358 million, compared to a net loss of $51 million a year earlier.
On the back of these results, more than five brokerages cut their price targets for BBBY stock, saying a turnaround for the business is unlikely in the short term.
Bed Bath & Beyond Stock: Caution is Warranted
Given the high, and rising, level of short interest here, we think caution is warranted towards BBBY stock at present.
Some insiders clearly believe the stock will recover from its recent sell-off. However, betting against short sellers can be dangerous.