Plunging meme stock Bed Bath & Beyond vindicates short-sellers as GameStop and AMC remain elevated

Published Thu, Sep 30 202110:21 AM EDTUpdated Thu, Sep 30 20214:06 PM EDT

Bed Bath & Beyond shares plunged on Thursday on disappointing earnings and guidance, wiping out its jaw-dropping meme-stock rally in 2021 as harsh reality sets in. The big-box retailer saw its stock tanking 22% Thursday after the company slashed its revenue and earnings outlook amid supply chain challenges and inflation. The steep decline pushed the stock down 2.7% on the year. Bed Bath & Beyond was once among a slew of heavily shorted names like GameStop and AMC targeted by small-time investors who coordinated trades on online chatroom WallStreetBets. The phenomenon sent shockwaves through Wall Street as these stocks skyrocketed in prices, inflicting huge pain for short-selling hedge funds as they scrambled to cover their negative bets. Now these short sellers might be vindicated as Bed Bath & Beyond shares erased its Reddit-fueled rally and turned negative on the year. The short interest in the retailer remains elevated with 21.8% of its float shares sold short, according to FactSet. An average U.S. stock has about 5% of its available shares sold short. "The shorts were right," Jim Chanos, founder of Kynikos Associates who tweets under "Wallstcynic," said on Twitter. He cited deteriorating fundamentals for the sharp reversal. Other popular meme stocks like GameStop and AMC could repeat Bed Bath & Beyond's downfall if they fail to utilize the new capital raised this year and turn around their failing businesses in time to satisfy the new meme-inspired shareholders. Short-sellers largely are sticking with their bearish bets on GameStop and AMC and Wall Street analysts see big losses ahead for shareholders. AMC has about 19% of its float shares sold short, while the short interest in GameStop stood at about 12%, according to FactSet. Month to date, AMC and GameStop are down 25% and 20%, respectively. GME analysts expect the stock to plummet more than 50% to $71 a share, based on the consensus estimate of four analysts polled by FactSet. AMC is forecast to tumble more than 80% to under $10 a share. Enjoyed this article? For exclusive stock picks, investment ideas and CNBC global livestream Sign up for CNBC Pro Start your free trial now

People wearing face masks walk past the Bed Bath & Beyond store in New York City.

John Nacion | SOPA Images | LightRocket | Getty Images

Bed Bath & Beyond shares plunged on Thursday on disappointing earnings and guidance, wiping out its jaw-dropping meme-stock rally in 2021 as harsh reality sets in.