Bed Bath & Beyond jumps 50% to lead ‘nonsense’ rally in meme stocks; AMC gains 15%

Bed Bath & Beyond jumps 50% to lead ‘nonsense’ rally in meme stocks; AMC gains 15%

A “Store Closing” banner at a Bed Bath & Beyond store in Farmingdale, New York, Friday, Jan. 6, 2023.

Johnny Milano | Bloomberg | Getty Images

A group of highly speculative stocks rallied by double digits on Wednesday as retail investors pushed meme names back into the new year after a dismal 2022.

Bed Bath & Beyond rallied a whopping 50% to buck the trend in morning trading on Wednesday. Shares of GameStop, the original star of 2021’s meme stock craze, rose more than 10%. AMC Entertainment was up 18%.

Meme stocks rise once again. Earn % off 52W Bed Bath & Beyond (BBBY) 48.9%60%-89%AMC (AMC)21%15%-78%GameStop (GME)21%8%-62%

Source: FactSet

The rally at Bed Bath & Beyond was initially sparked by news that it would lay off more employees in an effort to cut costs and stay in business.

The home goods retailer told employees it is eliminating the role of chief transformation officer, held by Anu Gupta, on the same day it reported disappointing fiscal third-quarter results. Bed Bath & Beyond is inching closer to possible bankruptcy as its sales decline and losses mount.

“We don’t want strength in nonsense stocks like AMC, CVNA, GME, BBBY, PRTY, etc.,” said Adam Crisafulli, founder of Vital Knowledge. “It just means people are blindly following.”

During early 2021, a group of retail traders joined forces on social media to offer a series of heavily shorted stocks, creating massive short squeezes that caused great pain for short sellers. These meme stocks suffered big pullbacks last year when risk sentiment shifted amid aggressive rate hikes. GameStop fell 50% in 2022, while AMC fell 75% and Bed Bath & Beyond fell 82%.

While short interest in these names has come down from its peak after the freak episode, it still remains well above average.

About 48% of Bed Bath & Beyond’s float shares are sold short, compared with an average of 5% short interest in a typical U.S. stock, according to S3 Partners. For GameStop, short interest stands at 21%, up from more than 100% at the height of the meme stock craze in 2021, according to FactSet. AMC also has 21% of the shares sold short.

A short squeeze occurs when a stock jumps significantly higher, forcing short sellers to buy the stock in order to limit their losses. Short covering tends to push the stock further up.

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