The shares of Bed Bath & Beyond, a favorite with the meme stock crowd, plummeted on Thursday after analysts warned that the retailer is losing a key support leg in the form of activist investor Ryan Cohen.
Bed Bath & Beyond's valuation has become more connected to reality after a recent meme-stock rally.
Retail investors on forums like WallStreetBets have been buying up shares of Bed Bath & Beyond, causing the stock to fall over 20%.
Ryan Cohen, the chairman and activist investor of Bed Bath & Beyond, disclosed in new regulatory filings that he plans to sell nearly 10 million shares and options in the company for $150 million.
Bed Bath & Beyond shares were cut to a "sell" rating from a "neutral" rating by an analyst on Thursday, as he pointed out that the retailer's market valuation is "dis connected" to the company's fundamentals.
Cohen disclosed a nearly 10% stake in the company in March and pushed for the company to sell its Buy Buy Baby chain.
His exit removes a key support leg for Bed Bath & Beyond, which faces pressing issues like high cash burn and the need for further financing, according to Basham.
The analyst maintained a $5 per share price target for the stock, implying a 70% decline from current prices.
Bed Bath & Beyond finds itself in an "unenviable position as it faces steep market share losses, an overabundance of inventory and dwindling cash reserves," according to the analyst. Given the soft demand environment, continued rapid sales declines and a weak balance sheet, it will be difficult to quickly fix these issues.
Prior to Thursday, Bed Bath & Beyond's stock had doubled in value as retail traders clamored for the stock. Even though most Wall Street analysts maintain a "sell" rating on the stock, the gains come even as they remain skeptical about the retailer's ability to turn around its business. On Tuesday, the stock was halted several times, at one point rising as much as 70% on news that Cohen had purchased call options on 1.6 million shares. While Cohen's purchase earlier this week was viewed as a vote of confidence by investors, there is a strong likelihood that the latest disclosure about him selling his stake has made investors less enthusiastic about the stock.
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