Bed Bath & Beyond downgraded for a sixth time this week as it gets caught up in trading frenzy

Published Thu, Jan 28 20218:39 AM EST

Six Wall Street firms have downgraded Bed Bath & Beyond this week as the company gets caught up in the retail investor mania fueling gains in GameStop , AMC and other popular hedge fund short targets. In the last week, shares of Bed Beth & Beyond are up nearly 100%, pushing analysts to the sidelines. "With no significant news specific to the company announced or changes in consensus earnings, the increase in share price appears to be driven solely by a short squeeze ... and high retail enthusiasm," Bank of America wrote Thursday in a note to clients as it cut the stock to a neutral rating. Analyst Curtis Nagle said that while he still sees a turnaround story for the company playing out, "the sheer speed and magnitude of the price increase make it harder for us to justify a Buy rating." He did, however, raise his target on the stock from $31 to $55. The stock closed at $52.89 on Wednesday. The influence of retail investors — most apparent in GameStop — has captivated the Street in recent days, and speaks to a new class of traders who grew up amid the pandemic. Individual investors are creating short squeezes by piling into names that hedge funds are betting against, forcing the funds to rush to cover their losses. This typically pushes shares even higher. Retail investors are promoting their activity on the WallStreetBets Reddit board, which has north of 3 million members. Short selling is a strategy in which investors borrow shares of a stock at a certain price in expectation that the market value will fall below that level when it's time to pay for the borrowed shares. Data from S3 Partners earlier in the week showed Bed Bath & Beyond as the second most shorted stock in the market, and it continues to carry a high short interest. Currently 63% of the retailer's shares available for trading are sold short, according to FactSet. Telsey Advisory Group echoed Bank of America's comments when it, too, downgraded the retailer to a market perform rating on Thursday in a note titled "Too Far, Too Fast for a Turnaround Story." "The sudden, sharp surge in Bed Bath & Beyond's share price and valuation likely has been fueled by a short squeeze, given the high short interest (over 60%), and speculation by retail investors, fueled in chat rooms, much like GameStop," analyst Joseph Feldman said in a note to clients. He raised his target from $27 to $40. On Wednesday Wedbush Securities and Baird each cut the stock to a neutral rating, with the former also removing it from the firm's "Best Ideas List." Meanwhile Raymond James downgraded the stock to a market performing from strong buy rating on Tuesday, with UBS dropping the stock to a sell rating. Shares of Bed Bath & Beyond were flat in premarket trading. AMC, which gained 301% on Wednesday, declined 2% ahead of the opening bell. But the rally continued in GameStop after the stock swung between gains and losses in overnight trading. Shares were last up 35%. - CNBC's Michael Bloom contributed reporting.

Shoppers enter a building housing a Bed Bath & Beyond Inc. store in New York.

Mark Kauzlarich | Bloomberg | Getty Images

Six Wall Street firms have downgraded Bed Bath & Beyond this week as the company gets caught up in the retail investor mania fueling gains in GameStop, AMC and other popular hedge fund short targets.

In the last week, shares of Bed Beth & Beyond are up nearly 100%, pushing analysts to the sidelines.

"With no significant news specific to the company announced or changes in consensus earnings, the increase in share price appears to be driven solely by a short squeeze ... and high retail enthusiasm," Bank of America wrote Thursday in a note to clients as it cut the stock to a neutral rating. Analyst Curtis Nagle said that while he still sees a turnaround story for the company playing out, "the sheer speed and magnitude of the price increase make it harder for us to justify a Buy rating."