Bed Bath & Beyond Inc. (BBBY) has been facing financial difficulties and struggling to turn its situation around. Despite the company’s attempts to raise funds and restructure its debt, recent developments have left investors with little confidence in the stock’s stability.

In this article, we’ll take a closer look at the stock’s red flags and discuss why there’s no stability for investors in this stock.

The home goods seller is facing financial challenges due to high inflation, increased interest rates, and decreased demand for home decor in a slowing economy. As a result, the company’s cash reserves have been dwindling as vendors demand quicker payments, exacerbating its struggles.

BBBY had received a notice of default on its loan from JPMorgan Chase Bank in January this year, and the company said in a regulatory filing it does not have sufficient resources to repay the amounts under the credit facilities, adding it will consider all strategic alternatives, including restructuring its debt under the U.S. Bankruptcy Code.

In February, the company announced it was planning to raise some $1 billion through an offering of preferred stock and warrants in a last-ditch effort to stave off bankruptcy.

However, the company recently announced an amendment to its warrants to purchase Series A Convertible Preferred Stock issued on February 7, 2023. The amendment temporarily adjusts the Price Failure threshold to $1.00 until April 3, 2023, and increases the Threshold Share Amount to 24,739.

BBBY has recently announced plans to seek approval for a reverse stock split of its common stock at a ratio of 1-for-5 to 1-for-10, to be determined at the discretion of the Board of Directors. Investors reacted poorly, and the share fell to a 30-year low after the announcement.

Additionally, S&P Dow Jones Indices, a unit of S&P Global Inc, announced earlier this month that BBBY would be removed from the small-cap S&P 600 index.

Furthermore, BBBY has lost 97% over the past year and 87% over the past six months, closing the last trading session at $0.80. The stock has declined 42.9% over the past month. The stock is also 97.3% down from a 12-month high of $30.

Here is what could shape BBBY’s performance in the near term:

Weak Financials

BBBY reported disappointing results for the third quarter that ended November 26, 2022, with a wider-than-expected loss and drop in sales.

BBBY’s net sales declined 33% year-over-year to $1.26 billion. Its adjusted gross profit decreased 57.4% year-over-year to $287.42 million.

Also, its adjusted net loss increased 1,248.3% year-over-year to $331.23 million, while its adjusted loss per share rose 1,360% year-over-year to $3.65.

Negative Analysts Sentiment

Analysts expect BBBY’s EPS to decline 105.5% year-over-year to negative $1.89 in the fiscal fourth quarter that ended February 2023. Its revenue is expected to fall 31.1% year-over-year to 1.41 billion for the same quarter.

Moreover, its EPS and revenue are expected to decrease 955.2% and 28.7% year-over-year to $11.40 and $5.61 billion in the fiscal year that ended February 2023. The stock has failed to surpass the EPS and revenue estimates in each of the trailing four quarters, which is disappointing.

Poor Profitability

BBBY’s trailing-12-month gross profit margin of 26.14% is 25.3% lower than the industry average of 35.00%. Its trailing-12-month EBITDA and net income margins of negative 9.87% and 20.54% are lower than the industry averages of 11.43% and 4.50%.

Additionally, its trailing-12-month ROTC and ROTA of negative 17.7% and 28.99% are lower than the industry averages of 6.32% and 3.84%, respectively.

POWR Ratings Reflect Bleak Prospects

BBBY has an overall rating of F, equating to a Strong Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. BBBY is graded an F in Sentiment, justified by poor analysts’ estimates. It also has an F grade for Stability, in sync with its high 24-month beta of 2.84.

It has a D grade for Quality, consistent with its negative profitability margins.

In the 56-stock Home Improvement & Goods industry, BBBY is ranked last.

Click here to access the additional Growth, Value, and Momentum grades for BBBY.

Bottom Line

BBBY is trading below its 50-day and 200-day moving averages of $1.98 and $4.89, respectively, indicating a downtrend.

BBBY reported disappointing financial results in the latest quarter, with both revenue and EPS falling short of analysts’ expectations. This paints a bleak picture in the highly competitive retail market and further highlights the company’s challenges.

Moreover, the company is looking to implement a reverse stock split and is continuing with its equity offering agreement despite a significant decline in the value of its shares. These actions suggest desperation and do not indicate a positive outlook for the company.

Therefore, I think it is wise to avoid the stock.

Stocks to Consider Instead of Bed Bath & Beyond Inc. (BBBY)

Unfortunately, the odds of BBBY outperforming in the weeks and months ahead are greatly compromised. However, there are many stocks in the Home Improvement and Goods industry with impressive POWR Ratings. So, consider these three A-rated (Strong Buy) stocks instead:

Acuity Brands, Inc. (AYI)

Bassett Furniture Industries, Incorporated (BSET)

Haverty Furniture Companies, Inc. (HVT).

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BBBY shares rose $0.01 (+1.75%) in premarket trading Thursday. Year-to-date, BBBY has declined -68.13%, versus a 5.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Kritika Sarmah

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities. More...

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