Hat tip to you, Bank of America analyst Curtis Nagle for adhering to some very basic principles of investing, which still matter even though meme stock traders couldn't care less about valuation methodologies, free cash flow outlooks or margin structures.
After seeing Bed Bath & Beyond (BBY) shares explode 62% on June 2, Nagle said in a research note on Friday that it's time for him step back from the volatile stock.
"This [move in the stock] comes in the context of no significant updates from Bed Bath & Beyond or any other material news. Bed Bath & Beyond did release a press release on 6/2/21 regarding the launch of three new private label brands but this was already expected by investors and is not material, in our view. Instead we believe that the rapid appreciation in Bed Bath & Beyond's shares is being driven by another surge in interest and trading led by retail investors," Nagle said. "This follows a very large but short-term move in late January of this year. We also note that Bed Bath & Beyond's share price increase corresponds to big moves over the past week with "meme stocks" such as GameStop, AMC and BlackBerry. As a result, we move to No Rating as we believe shares of Bed Bath & Beyond are no longer trading on fundamentals. Investors should no longer rely upon our previous investment opinion or price objective."
Nagle isn't the first sell-side analyst this year to remove a rating or price target — or just outright drop coverage — of a company swept up into meme stock mania. Even still, as this former analyst could attest these are drastic actions that are far from the norm among the analyst community on Wall Street. It's a group that prides itself on making great calls after conducting granular research and maintaining good relationships with executive teams.
But the surprise maneuvers do underscore how impossible it is for an analyst to properly cover a company — which includes talking with management, modeling out future earnings and communicating those things to clients —amid an environment fast-filling up with a new generation of retail traders. In this topsy turvy backdrop, a veteran analyst could go from being a hero one day to being out of a job tomorrow simply because a CEO like Adam Aron of AMC conducts an interview with a YouTube influencer.
Having said all of that, as luck would have it Bed Bath & Beyond CEO Mark Tritton was on Yahoo Finance Live on June 2 as the company's stock was going to the moon. Tritton joined us as shares of Bed Bath & Beyond was up more than 40%, as the meme stock army let themselves be heard once more.
"I think today's activities are just a day in time. It doesn't affect us operationally. We are focused and ready," Tritton said. "Regardless of the stock movement our role is to create sequential growth and strength at both the balance sheet and in growth ratios. We believe we have been doing that."
BofA's Nagle appears to believe that too, saying the company has a "solid" long-term turnaround in place. That may eventually lend itself to a fresh rating on the stock from Nagle, but for now the meme army is going to do its thing.
Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.
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