Bed Bath & Beyond (BBBY Quick QuoteBBBY - Free Report) has been a clear victim of the retail apocalypse, with overtly deteriorating brick-and-mortar operations that have been further exacerbated by margin inverting inflationary pressures.

The firm’s latest earnings report depicted the most alarming quarterly results for this antiqued retailer to date, with a deeply negative EPS (worst since the height of pandemic lockdowns) that missed analysts’ positive estimates by a mile.

The unveiling of Bed Bath & Beyond’s February quarter results in mid-April ripped away most of the remaining bullish narratives on this archaic name. Bed Bath & Beyond’s failure (as of now) to effectively execute a digitalized omnichannel customer experience, having largely missed the tidal wave of digital-sales adaptation over the past 2 years, is its undoing.

Analysts are getting increasingly bearish on this volatile r/WallStreetBets-fueled “meme stock,” as earnings estimates tumble deeply into negative territory for the upcoming years, driving BBBY down into a Zacks Rank #5 (Strong Sell).

The Big Short Squeeze

BBBY’s excessive short-interest (close to 100% of free-floating shares) coupled with its nostalgic qualities (specifically attractive amongst Millennials) may be the only reason this antiquated brick-and-mortar merchant has been able to stay out of bankruptcy court (higher market value increased its access to credit facilities).

These unique characteristics led to a r/WallStreetBets (WSB) juiced short-squeeze in BBBY when its “meme stock” status was established last January, propelling BBBY up as much as 200% in the first few weeks of 2021.

Nevertheless, BBBY failed to take advantage of the capital raising opportunity that was offered to them in the public markets on a silver platter (a share price that was over 3x its real intrinsic value). In fact, the company continued its previously planned share buyback program while its shares sat at clearly overvalued levels, highlighting the concerning level of complacency at the helm of Bed Bath & Beyond.

BBBY’s WSB euphoria, despite a couple of fleeting meme-fueled rallies, has lost its luster as a gambling/trading tool and its share price is quickly diminishing alongside its fundamental backdrop.

Deteriorating Fundamentals & Valuation

Bed Bath & Beyond is in the process of leaning up its store-front operations shutting down 20% of its physical stores while working towards the build-out of its digital offering (much more of a forced reactive play to the pandemic than a proactive one).

Cash reserves for the company have continued to plummet, with balance liquidity being cut by 75%, and its credit rating has been rapidly dropping.

Bankruptcy is looking like a real possibility if the firm’s freshman management team (almost all of the C-suite positions having been replaced in the past couple of years) is not able to materially shift the consumer narrative on this company then liquidation would be inevitable.

Bed Bath & Beyond is no longer able to be valued on a price-to-earnings basis following its latest earnings reports, which catalyzed a consensus flip of EPS estimates into negative territory for the foreseeable future (next two years), which changes the way many analysts value the stock.

BBBY’s forward enterprise value-to-EBITDA or EV/EBITDA (market value of stock and outstanding bonds/debt less cash divided by expected earnings before interest, depreciation, & amortization) has ballooned to over 17x from its 4x median over the past 5 years.

With a low single-digit growth outlook for the years ahead (potentially even negative), there is no way to justify “value” at this market multiple, despite BBBY having lost over 50% of its value in Q2 trading thus far.

6 out of 12 analysts are calling BBBY a sell today with some base-case price targets sitting materially below $10 a share. I would stay away from this toxic equity as the chances of getting burned, even after its recent capitulation, remain elevated.