Short selling data can help active investors with their risk management. Short sellers tend to be sophisticated, high-conviction traders. If they’re targeting a stock, there’s usually a good reason they are doing so.
In this report, we are going to analyze the short selling data on Bed Bath & Beyond Inc (BBBY:US). Bed Bath & Beyond is a US retailer that sells domestic merchandise and home furnishings. The company operates nearly 1,000 stores across US, Canada, Mexico, and Puerto Rico, and also sells its goods online through a number of different websites. It is listed on the NASDAQ Global Select Market and currently has a market capitalization of $1.3 billion.
Bed Bath & Beyond Inc: Short Selling Data
Looking at the short selling data on BBBY, we see a couple of major red flags. The first is that short interest is very high. At present, 27.2 million shares are on loan. That represents about 28.2% of the free float. This tells us that there are plenty of institutional investors that expect the stock to fall.
The second red flag is that the number of BBBY shares on loan has risen substantially recently. Our data shows that at the beginning of 2022, 18.5 million shares were on loan here. Since then, the figure has risen by 47%. This is concerning, in our view, as it indicates that short sellers are ramping up their downside bets here. It’s worth noting that research on short selling activity has shown that stocks that see sharp rises in short interest tend to underperform in the near term.
Why Are Short Sellers Targeting Bed Bath & Beyond?
As for why the short sellers are targeting BBBY, it could be down to the company’s poor operational results. In the most recent quarter (ended 26 February 2022), net sales were down 22% year on year while comparable sales were down 12% year on year. Management blamed supply chain issues, Covid-19, and a lack of consumer confidence for the drop in revenue. Earnings per share came in at -$1.79, well below the consensus forecast of 3.0 cents.
The attention from short sellers could also be down to the company cash burn. At the start of the last fiscal year, BBBY had cash, cash equivalents, and restricted cash of $1.4 billion. However, at the end of the last quarter, the figure had declined to just $0.5 billion. What’s unusual here is that the company is buying back its own shares at the moment despite the fact that it is not profitable.
Of course, debt on the balance sheet could also be an issue for short sellers. At the end of the last quarter, BBBY had long-term debt of $1.2 billion on its books versus total shareholders’ equity of $174.1 million. With interest rates rising in the US, this debt is going to become more expensive to service.
Whatever it is the short sellers have spotted here, we think caution is warranted towards the stock. The high level of short interest indicates that many investors expect the stock to underperform.