What happened
Shares of Bed Bath & Beyond (BBBY 35.28%) are surging Wednesday. The meme stock was up roughly 29% as of 2 p.m. ET, according to data from S&P Global Market Intelligence.
Bloomberg published a report today stating that the beleaguered retail company had restarted preparations for bankruptcy filings. In most cases, that’s the kind of news that would likely be met with significant stock sell-offs. But some investors are betting that the company will be able to once again fend off going bankrupt — or at least see volatile swings that open the door for sizable short-term gains.
So what
According to Bloomberg, Bed Bath & Beyond has begun holding talks with financial advisors and potential lenders as it looks into Chapter 11 bankruptcy filings. Bed Bath & Beyond has been aiming to raise $300 million in funding through stock sales by April 26 in order to avoid having to declare bankruptcy. On that date, the company is required to file its 10-K annual report with the U.S. Securities and Exchange Commission (SEC) and give an evaluation of whether it meets certain requirements for being publicly listed.
With a potential bankruptcy on the horizon, some meme-stock investors and ultra high-risk, high-reward traders are making plays on the stock in hopes of scoring sizable returns in short order. Some of Bed Bath & Beyond’s gains today may stem from large investors pouring into the stock, coordinated buying from members of meme stock-focused online investing communities, and short-squeeze momentum.
Now what
While it’s possible that Bed Bath & Beyond stock will continue to climb above current pricing levels, investors should be very cautious with the company. Stocks can sometimes see highly unusual, even counterintuitive trading leading up to or immediately following bankruptcy declarations, but it’s virtually never good news for long-term investors. If Bed Bath & Beyond does wind up declaring bankruptcy this month, it’s very likely that the stock will be trading close to zero before long.