A 20-year-old university student has made a roughly $110 million (€108 million) gain by selling a stake in struggling retailer Bed Bath & Beyond, after its stock price soared during a month of frenzied trading reminiscent of last year’s meme stock boom.
Jake Freeman, an applied mathematics and economics major at the University of Southern California, acquired nearly five million shares in Bed Bath & Beyond in July, according to regulatory filings, after dismal earnings and the ousting of its chief executive sent its stock price plummeting.
Mr Freeman bought his stake at less than $5.50 a share. On Tuesday, Bed Bath & Beyond surged to more than $27 a share. As the stock soared, Mr Freeman sold more than $130 million worth of stock from his TD Ameritrade and Interactive Brokers accounts.
“I certainly did not expect such a vicious rally upwards,” Mr Freeman said. “I thought this was going to be a six-months-plus play . . . I was really shocked that it went up so fast.”
After selling the shares, Mr Freeman went for dinner with his parents in the suburb of New York City where they live and on Wednesday he flew to Los Angeles to return to campus, he said.
Mr Freeman’s initial stake cost about $25 million (€24.6 million), which he said was mostly raised from friends and family. He has invested for years with his uncle, Dr Scott Freeman, a former pharmaceutical executive. The two recently built an activist stake in a publicly traded pharmaceutical company called Mind Medicine.
Mr Freeman also said he had interned for years at a New Jersey hedge fund, Volaris Capital. Just before his 17th birthday, Freeman and its founder, Vivek Kapoor, a former Credit Suisse executive, published a paper titled “Irreducible Risks of Hedging a Bond with a Default Swap”.
Mr Freeman amassed his more than 6 per cent position in Bed Bath & Beyond via Freeman Capital Management, a fund registered in the cowboy town of Sheridan, Wyoming, according to the filings.
Upon disclosing his position in July, Mr Freeman sent an uncompromising message to the retailer’s board. The company, he said, was “facing an existential crisis for its survival”. It needed “to cut its cash-burn rate, drastically improve its capital structure, and raise cash”, he added.
Shares of the New Jersey-based chain – known for operating cavernous stores full of vacuums, towels and kitchen gadgets – have risen fivefold over the past month even after the grim earnings report on June 29th.
It reported sales had plunged 25 per cent in the second quarter compared with the same period of 2021, while its net loss widened to $358 million (€353.5 million) from $51 million (€50.3 million). Its cash position had dwindled to $107 million (€105.6 million) from $1 billion (€990 million) at the start of the year.
Bed Bath & Beyond is one of a handful of meme stocks that became popular at the start of 2021 but has garnered less attention than GameStop, the video game retailer, and AMC, the cinema chain.
The increase in its share price has been driven by interest from retail investors attracted by the stock’s small free float and a significant number of short sellers betting the share price will fall.
Those two characteristics tend to draw interest from retail investors frequenting Reddit forums. It means they can try to engineer a “short squeeze” by driving the share price higher and forcing professional investors to unwind their bearish positions, which only propels the stock even higher.
Mr Freeman’s sale was well-timed. Shares of Bed Bath & Beyond fell 17 per cent in after-hours trading on Wednesday after Ryan Cohen, GameStop’s chair and a large shareholder of the homeware retailer, disclosed he was planning to sell his entire stake of almost 12 per cent in the company.
It was a separate disclosure on Monday from Mr Cohen, co-founder of pet food retailer Chewy and a meme-stock champion, that sent the stock on a tear on Tuesday. He disclosed he had purchased a large number of call options in Bed Bath & Beyond – derivatives that can deliver a windfall if a stock rises in value.
Mr Cohen did not respond to a request for comment.
– Copyright The Financial Times Limited 2022