Should investors wait for Bed Bath and Beyond's share price to cool before buying?

Bed, Bath and Beyond’s [BBBY] share price soared more than 70% Tuesday last week.

Triggering that surge was a spate of announcements. The first was that the company plans to expand online through the creation of its own digital marketplace. The second was a partnership with Kroger to sell baby products on Kroger.com and in selected stores.

Yet what really heated up Bed, Bath and Beyond’s share price was a short squeeze during after hours trading.

Can Bed, Bath and Beyond’s share price sustain its rally?

A short squeeze is where hedge funds betting against a stock have to buy back shares to cut losses. Bed, Bath and Beyond is one of the third most shorted large US companies, reports CNBC.

Along with Gamestop [GME] and AMC [AMC], Bath, Bed and Beyond was a favourite of the meme crowd earlier in the year. Arguably, plans to expand its offering using money raised from non-traditional investors could pay off for what has been a struggling company.

“There are a number of these broken companies that are finding ways to reinvent themselves,” Seymour Asset Management founder Tim Seymour told CNBC. “Whether some of these companies are [reinventing themselves] or not, the capital markets are allowing them to get there and then figure it out later. And that’s been one of the great stories of 2021.”

Yet with the short squeeze artificially lifting BB&B’s share price, investors might want to wait for the current trading to cool down - after all, the concern is that BB&B’s share price won't maintain this surge as there is a lack of ‘authentic’ market sentiment

Where next for Bath, Bed and Beyond’s share price?

Such a cool down looks to be already taking place. Between 2 November and 5 November, the retailer’s share price rallied just over 41%, hitting $22.55 on Friday’s close. However, when the US markets reopened the following Monday, the stock fell almost 4%. And as a meme the worry is that the stock is in for a big drop in a short amount of time.

Headwinds for Bed, Bath and Beyond include inflation, rising prices and consumers spending less on homewear following the pandemic. In August, the company’s share price tanked as the company reported a drop in sales, supply chain issues and disappointing second quarter results.

In the second quarter, Bed, Bath and Beyond delivered earnings of $0.04 a share, well off the expected $0.52 a share. Revenue was $1.99bn, a 26% drop from the $2.69bn seen a year earlier. Denting the results was a rise in COVID-19 infections over the summer that led to a drop off in people shopping in the company’s box-box retail stores. The proposed digital expansion could act to counterbalance this issue, but there are scant details on when it will launch.

For the full-year, Bed, Bath and Beyond lowered its guidance and is now expecting earnings of $0.70 a share on sales of $8.1bn to $8.3bn. Previously, it was expecting earnings of between $1.4 and $1.55 a share on sales of $8.2bn to $8.4bn.

Judging by analyst price targets and the revised guidance, investors might want to pull the plug on investing in the stock. Bed, Bath and Beyond share price has an average $19 price target from the 15 analysts polled by Refinitiv - a 12% drop from Tuesday’s close. The most bullish price target from the 15 analysts polled is $34 - a hefty  57% upside - while the most bearish target is $12, which would see a 44% collapse in the stock. Of the 20 analysts offering recommendations, 10 rate the stock a Hold and 8 Underperform.