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Bed Bath & Beyond Spike Sparks Meme Mania 2.0

To Infinity and Beyond?

On Monday, shares of Bed Bath & Beyond BBBY soared 92% after rumors swirled that the beaten-down retailer was about to receive a leveraged buyout (LBO) offer and be rescued from bankruptcy.

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Zacks Investment Research


Image Source: Zacks Investment Research

Bed Bath & Beyond has long been a favorite of the “meme stock” craze, which took hold of Wall Street in late 2021 when shares of GameStop GME rocketed more than 1600% in just a single month.

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Zacks Investment Research


Image Source: Zacks Investment Research

At that time, retail investors, predominantly in the “WallStreetBets” chat room on the Reddit social media platform, devised a plan to fight for the “common man” (retail investor) by banding together to pump the prices of heavily shorted stocks such as AMC Entertainment AMC and Virgin Galactic SPCE.

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Meme Mania 2.0

For those who were monitoring markets during the first go around, Monday’s action felt like Meme stock déjà vu all over again. Unprofitable, highly speculative, and heavily shorted stocks rose due to hype and speculative juices, not fundamental or news-driven reasons. Bed Bath & Beyond seemed to be the driving force. Following the spike in BBBY, Meme stock aficionados seemed to be sparked into action - driving shares of GME and AMC higher by more than 7%. Meanwhile, new speculative stocks (particularly those with AI in their name) are emerging. Big Bear AI Holdings BBAI rocketed higher by nearly 18% while shares of C3.ai Inc AI tacked on 6.50%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Context Matters: Know What you’re Trading

Though today’s gains in meme stocks are substantial, one day does not necessarily mark a trend. In fact, the remains of Meme Mania 1.0 are littered with stocks in downtrends experiencing short euphoric spikes, which ultimately lead to lower lows in most instances.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Who are the Winners?

The winners are those who purchased shares years ago and sold into euphoric moves or those who purchased shares within the past few days as a speculative trade/gamble.

Losers?

·      Intermediate to long-term holders:  AMC topped in July of 2021 near $73 and has been stuck in a downtrend ever since and is trading at around $7. BBBY traded at $54 in 2021 and is now at around $6. Even with Monday’s double, shares are back to where they were at the beginning of 2023.

·      The Roundhill Meme ETF MEME:The MEME ETF is designed to mirror the price action in meme stocks. Despite the breathtaking moves in meme stocks Monday, MEME gained an unimpressive 1.77%. Its top holdings include Peloton Interactive PTON, Sofi Technologies SOFI, and Coinbase Global COIN.

Conclusion

Meme stocks can be tempting for retail investors due to their propensity for large daily price spikes. However, context matters. Because they are highly shorted and heavily manipulated, they can be challenging to trade on both sides, even for the most advanced traders. Luckily for investors, thousands of stocks are at their disposal which have lower betas and less risk. When it comes to trading meme stocks, most investors are best served to sit on the sidelines and observe – unless they are looking to gamble or participate in a short-term, highly speculative, and risky trade.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

GameStop Corp. (GME) : Free Stock Analysis Report

Bed Bath & Beyond Inc. (BBBY) : Free Stock Analysis Report

C3.ai, Inc. (AI) : Free Stock Analysis Report

AMC Entertainment Holdings, Inc. (AMC) : Free Stock Analysis Report

Peloton Interactive, Inc. (PTON) : Free Stock Analysis Report

Virgin Galactic Holdings, Inc. (SPCE) : Free Stock Analysis Report

Coinbase Global, Inc. (COIN) : Free Stock Analysis Report

SoFi Technologies, Inc. (SOFI) : Free Stock Analysis Report

BigBear.ai Holdings, Inc. (BBAI) : Free Stock Analysis Report

Roundhill MEME ETF (MEME): ETF Research Reports

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Zacks Investment Research