Connect with us

Stocks

Bed Bath & Beyond (BBBY) Stock Falls as Investors Lose Hope

Source: Shutterstock
This week has been another dismal one for shareholders in embattled retailer Bed Bath & Beyond (NASDAQ:BBBY). Despite trading as high as $4 per share on Monday, BBBY stock has since sunk to the $3.20 level. This u…

Bed Bath & Beyond (BBBY) Stock Falls as Investors Lose HopeSource: Shutterstock

This week has been another dismal one for shareholders in embattled retailer Bed Bath & Beyond (NASDAQ:BBBY). Despite trading as high as $4 per share on Monday, BBBY stock has since sunk to the $3.20 level. This underperformance follows some disappointing news around the company’s latest restructuring efforts.

As InvestorPlace reported yesterday, the company recently extended its deadline for its convertible debt exchange from Dec. 5 to Dec. 19. Essentially, what the company is trying to do is restructure its balance sheet, issuing equity (shares) to offload some of its debt.

Advertisement

As it turns out, investor appetite for this offering is limited. Existing shareholders will experience dilution from such a deal — leading to a lower price per share — and existing bondholders will forego their more senior rights in the event of a bankruptcy. Thus, as bankruptcy risk increases with Bed Bath & Beyond, debt holders appear to be stuck in a no-win position.

Let’s dive more into what this offering means and why shares of BBBY stock continue to slip on the news.

Advertisement

Why Is BBBY Stock Continuing Lower?

This convertible debt offering isn’t some sort of sneaky maneuver. Plenty of companies with overburdened balance sheets attempt such moves in difficult times. However, the signal the offering sends to shareholders is one that most don’t seem to like right now.

Advertisement

For one, debt holders who agree to convert their debt to equity stand to dilute existing shareholders. In anticipation of this, shareholders are selling while the price remains (relatively) high, creating a self-fulfilling prophecy. Thus, existing bondholders have less incentive to convert their debt to equity that’s eroding in value.

That said, there are notable benefits to this conversion for the company. If Bed Bath & Beyond can free up room on its balance sheet, it may be able to make it through this holiday season in decent shape. Currently, it’s running into trouble, with sales hurting due to out-of-stock items that are tied to suppliers holding back shipments. If the company can turn around this downward spiral by convincing suppliers the company is good for it, it may be able to survive.

Advertisement

However, that could also be too rosy of an outlook. The company is in trouble and all indications are that this holiday season may be the worst in some time. Bed Bath & Beyond is cutting costs everywhere and trying to keep its head above water. In the retail world, that generally doesn’t bode well.

Thus, the selloff in BBBY stock will likely continue in the absence of any good news. Despite previous retail investor interest, this stock doesn’t have the fundamentals to support another rally. That doesn’t mean another rally won’t materialize — anything is possible. But I’m still staying far away from shares.

Advertisement

On Penny Stocks and Low-Volume Stocks: With only the rarest exceptions, InvestorPlace does not publish commentary about companies that have a market cap of less than $100 million or trade less than 100,000 shares each day. That’s because these “penny stocks” are frequently the playground for scam artists and market manipulators. If we ever do publish commentary on a low-volume stock that may be affected by our commentary, we demand that InvestorPlace.com’s writers disclose this fact and warn readers of the risks.

Read More: Penny Stocks — How to Profit Without Getting Scammed

Advertisement

On the date of publication, Chris MacDonald did not hold (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.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

Advertisement

More From InvestorPlace

  • Buy This $5 Stock BEFORE This Apple Project Goes Live
  • The Best $1 Investment You Can Make Today
  • Early Bitcoin Millionaire Reveals His Next Big Crypto Trade “On Air”

The post Bed Bath & Beyond (BBBY) Stock Falls as Investors Lose Hope appeared first on InvestorPlace.

InvestorPlace| InvestorPlace

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published. Required fields are marked *