(Reuters) -Shares of Bed Bath & Beyond Inc slumped nearly 40% in early trading on Tuesday after the retailer’s plans to raise about $1 billion through an offering failed to convince investors the company could avoid bankruptcy.
The additional cash would offer the troubled home goods chain a short window of only a few quarters to revive the business, Wall Street analysts said, adding that a weakening economy would diminish any chance of a successful turnaround.
“Unfortunately, we see a low probability the company will be able to raise equity and view this as a ‘last gasp’ before filing for bankruptcy protection,” Wedbush analyst Seth Basham said in a note.
Reuters reported late last month Bed Bath & Beyond was preparing to seek bankruptcy protection and had lined up liquidators to close additional stores unless a last-minute buyer emerged.
The company, which had a market valuation of $687.5 million at Monday’s close, said on Tuesday it expects to receive gross proceeds of about $225 million from the offering initially and an additional $800 million through subsequent installments.
The offering “maybe a band-aid but I’m not certain of all the makeup of their balance sheet. The problem is that they’re probably not going to be a big turn around story,” said Robert Gilliland, managing director at Concenture Wealth Management.
Bed Bath & Beyond’s shares were trading at $3.58 on Tuesday and among the most discussed on stockstwits.com.
They closed more than 92% higher on Monday on strong retail interest. It was the most traded stock on Fidelity’s customer platform, with about 60% buy orders versus 40% sell.
A part of the meme stock phenomenon, Bed Bath & Beyond’s shares surged to as high as $30 last year when activist investor Ryan Cohen took a stake in the company and pushed for changes.
Retail traders have pumped up prices of other meme stocks recently, including AMC Entertainment, which closed 11.8% higher on Monday, and rallied 67% this year.    Used car seller Carvana Co, another highly shorted stock, soared 183% so far this year, while video game retailer GameStop Corp, which was at the heart of the meme stock frenzy in 2021, jumped almost 30%.
Online quizzes and listicles maker BuzzFeed Inc has also joined the bandwagon with its shares more than tripling in value in 2023.
Vanda Research, which tracks retail investors flows, said individual investors were aggressive buyers of equities, especially single stocks, last week and showed signs of being “momentum-chasers”.Â
(Reporting by Deborah Sophia, Amruta Khandekar, Ankika Biswas in Bengaluru; Additional reporting by Medha Singh, Sruthi Shankar and Lance Tupper; Editing by Shinjini Ganguli)
