Bed Bath and Beyond (NASDAQ: BBBY) filed for Chapter 11 Sunday. There is so much speculation about failing companies these days that the short term stock price could go anywhere. But the bigger question is almost certainly when, not if, will that BBBY price go to zero. The question regarding that is not the speculation which will undoubtedly be indulged in. It's rather a hard headed calculation. Is there anything in the corporate shell which makes the assets worth more than the debts? If not then Bed Bath and Beyond stock will indeed go to zero. The only question is when that happens.
As we said Thursday about BBBY stock the only thing moving that price is speculation. That is, changes in peoples' opinions about what is going to happen rather than changes in reality concerning it. In one sense of course this Chapter 11 filing changes that for here we have a real event. As has been happening of late bankruptcy filings have often been accompanied by short term rises in stock prices. Far too many people think that some to many Chapter 11s will be like Hertz, there will be some asset in there which turns out to be valuable, therefore there will be a recovery for equity. This is not how it normally works out. Certainly the modal Chapter 11 leads to the equity going to zero, the median outcome is the same and the mean is so infinitesimally above zero as to be pretty much the same.
Bed Bath Beyond stock price from NASDAQ
There is always the fantasy that there is some asset in there - like the used cars at Hertz which so changed in value - or that some White Knight is going to ride in and save things. At BBBY that already happened of course: “Its shares rose and crashed as a meme stock on the news that activist investor Ryan Cohen invested in the company. He shook up corporate leadership and then cashed out of his bet with a tidy profit.” There was also that attempt to raise more equity which relied upon the stock price staying above $1 - it didn't.
We need to note the terms in that Chapter 11 filing. Bed Bath and Beyond stores are being liquidated, closed down. The management are not thinking that there is anything left, There is just the task of plucking the last bones from the corpse and going home.
As we say, BBBY stock could do just about anything in these next few days and weeks. But barring something truly, wondrously, extraordinary BBBY is headed to zero.