Big box giant Bed Bath & Beyond continues to rally soaring over 20 percent on Wednesday. Cheddar News speaks with Melissa Gonzalez, Principal at MG2 and Founder of the Lionesque Group, who breaks down what is fueling the latest rally.

Closing Bell

Bed Bath & Beyond Leads New Meme Stock Mania

Welcome back to closing bell on cheddar news. Everyone name stock mania seems to be back with shares of Bed Bath and beyond jumping 23% today, continuing a rally gaining in 14 of the past 15 sessions. It comes after filing showed activist investor Ryan Cohen's RC Ventures bought nearly 1.7 million shares of the home goods retailer earlier this week. In March. He disclosed his 10% stake in the company and Bed Bath and beyond is the most actively traded single stock option today, far ahead of investor favorites like Apple and Tesla. That according to data joining me now is Melissa Gonzalez, principal at M. G. Two and founder of the Lioness Group. Good to be back with you wondering if you can start off by just kind of defining the short squeeze for us and getting investors up to date for those that aren't familiar in layman's terms. My best shot at this is short sellers predict the stock go down. If investors throw support behind the stock, they force or squeeze short sellers to bail. Can you do a better job than that? Because I know that's not great. Sure. Um, these massive swings that they, they happen as retail investors and other traders kind of focus on buying into a shot stock, it bids it up and then it forces a short squeeze. So when, um, a stock is highly shorted, I mean, people are making a bet that, um, it's not going to perform well. Um, put one certain pressure on the stock and then when you get it back up, then it, it pressures that group that's betting on the downside to sell out of that position. Um, So that's, that's, that's in a nutshell, I guess that the best explain what's happening. Yeah. And typically we've seen the sentiment of a lot of main street fighting against the hedge funds on Wall Street because a lot of the time, those are the groups behind these bats that are what we would call pessimistic betting on the downfall of a lot of these companies. So what do you make of Wall Street being unable to kind of cope with this phenomenon even now? And it's kind of returning after we're experiencing a lot of these inflationary pressures. Sure. And we witnessed this last year right with Gamestop, it's really tricky. Um, and it could be a little bit dangerous for, um, for those that are kind of playing into this game. Um, and retail investors making these bets a lot of the time when a stock is heavily shorted, there's been a lot of investigation and, and research that's been happening on the performance of a company, that trajectory of it. Um, the financials of it and, and Bed bath and beyond has been a challenge stock for a while. It's a challenge company that really hasn't been able yet to really win and what they've put forward when it comes to private label, um, what that in store experience needs to be, how it needs to evolve for today's consumer. So it depends on what's causing the short, uh, to happen. So it's, it's, the stock is heavily shortened because there are true performance issues, then there's validation to that. Um, and so it's, it's a rally that's happening against that, but it's, it's kind of a dangerous one because at some point it could fall out of the bottom. Um, you know, we kind of saw that correction happened with Gamestop where there was definitely a lot of momentum into it. It really drove the stock up, but at the end of the day, the fundamentals are going to matter. Yeah, I think you give a really good snapshot of bed Bath and beyond. And so many other companies that we've seen ride the Reddit wave up until this point. Can you describe maybe just generally, I think again, you gave a good description of bed bath and beyond. But what can some of these meme stock rallies due to a company and maybe impede their growth? Yeah, I mean, it definitely causes a big frenzy. Um, and if there is, say, um, an activist investor looking or other strategic investors, if you're propping up the stock price of it while it could cause a short squeeze, it actually makes it more expensive to buy into that, um, as, as an investment. So it could impede the opportunities for that to happen. So, I mean, I hate to be so blunt to call it stock manipulation. Um, but in some ways it feels that borderlines on that. Oh, absolutely. I want to get back to the specifics of what we're seeing with bed bath and beyond right now. It's valued at around $25 at the beginning of the month. It was hovering around six just for comparison and how astronomical this trajectory has been. What do you think about the momentum? How long do you anticipate something like this last this time around? Obviously you don't have a crystal ball, but based on what we've seen recently and some of the different factors affecting the market and investors right now. What are your thoughts? Yeah. I mean, at some point, not only you're seeing a valley, but the valuation of that stock is not gonna make sense into its comparison to its comps who have better performance. Right? And so, um, that's when I think you're gonna start to see some of the leveling off happen. So I don't have a crystal ball your right. And we've seen some of the most impossible things happen. Like we saw last summer with Gamestop of how far this rally could go. Um, you probably see that pressure happening. And I'm not sure where that price point is that where the stocks we kind of will will turn, but um, it becomes too irrational at some point where the valuation at what this stock is trading at in comparison to comps that have better fundamentals, better margins, better price to earnings ratios. Um, that's, you know, that's gonna cause a correction And we know retail investors about over $73 million $80. What do you think about the valuation? I mean, I think that the evaluation is excessive and that's where I'm I'm not seeing how the fundamentals are standing behind it, given the challenges and the headwinds that this company has had and their inability to really turn it around to this point. I think there's a lot of excitement that happens when an activist investor shows interest because it gives hope that potentially somebody's going to turn the ship around. But I think that we're pretty far from seeing evidence of that. How do you think professional investors feel about meme stocks these days and I don't want to be completely Debbie down or even though of course we gotta make sure that everyone is making informed decisions out there. But do you think there have been any success stories when it comes to meme stocks? And a lot of these rallies, I mean, to a, to an extent right. Um, I think there was a period of time last summer when Gamestop saw attention, You saw a bit of a rally and there was some somatic aspects of it, that could make sense. People are staying home games on the rise, this is a category um that has momentum, but then when you blow past that and the fundamentals of how the company is actually performing, there's a humongous gap between there. Um That's when where I think that um you need to be careful especially if you're kind of coming at it from a retail investor point of view and you you might not have access to all that information and data to really research how companies performing. Um So it depends, you still need to be mindful of what are the factors that are going into how a stock's performing to really be able to validate that that said overall it's been a pretty tricky market and kind of irrational in many different directions. Um And right now you're seeing, you know, a lot of questions around are we in a recession where we are with that or people slowing their spending X. Category versus the other. So there's a lot of uncertainty. Um as a whole, I think there's opportunities again, when you know, you catch wind of things that live in a sector of positive momentum but you need to make sure that there's some reality and that of performance and valuation. Yeah, really good points and especially that you touch on the fact that these market conditions are really unprecedented. We've been talking about recession fears for months now and that's why I think it makes it so unique that we're seeing a rally like this. Do you anticipate that it spreads to other stocks, like we saw during the pandemic? Or do you think the steam is kind of short lived for this particular moment? I think it is possible. I think that there's a lot more um access um and tools out there for um retail investors to participate in the market and it's kind of increased that accessibility. So I do think that that is possible. Um Again, I would just, you know, with caution. Absolutely. Do your research. That's Melissa Gonzalez, principal of MG two and founder of the Lioness Group. Always good to have your perspective. Thanks for joining us.