Bed Bath & Beyond Leads Rout in Meme Stocks as Mania Fizzles

The unraveling of the latest meme stock frenzy is accelerating as bad news for some of the most popular retail-trader favorites pile up and investors broadly dump riskier assets.

AMC Entertainment Holdings Inc. plunged 38% in premarket trading ahead of its debut of a new class of shares and after peer Cineworld Group Plc confirmed it may go bankrupt. Bed Bath & Beyond Inc. tumbled 14%, on pace to add to a 52% two-day slide, after a report some suppliers were restricting or halting shipments altogether after the company fell behind on payments.

The movie-theater chain’s new preferred stock is set to begin trading on Monday under the ticker “APE.” The move splits the stock into two different units, so the value of an AMC Entertainment investment should be the combination of the two assets and not compared to what previous AMC Entertainment shares were worth, the company’s chief executive Adam Aron tweeted on Sunday.

AMC Entertainment dropped 26% last week while Bed Bath & Beyond crashed more than 60% from an intraday high on Wednesday. Meme stock poster-child GameStop Corp. was caught in the sell-off on Monday.

The sell-off in meme stocks started last week after Bed Bath & Beyond’s top investor Ryan Cohen disclosed that he was selling his stake in the home goods retailer. The activist investor went on to dump his entire stake and pocketed $68.1 million in profits, triggering the stock’s biggest intraday percentage decline ever on Friday.

“There are big questions about how the retailer can turn things around when the inflationary environment is hurting their potential consumer,” said Danni Hewson, an analyst at AJ Bell.

The retreat also follows a widespread stock market selloff Monday amid rising worries that the Federal Reserve would be committed to tighter monetary policies. Futures on the S&P 500 and Nasdaq 100 fell more than 1% each.

Meanwhile, data from Vanda Research showed that individual investors have reduced their Bed Bath & Beyond stock purchases over the last three sessions after having snapped up a record $73.2 million on Tuesday.

The buy-the-dip crowd was out in early trading, however, making Bed Bath & Beyond and AMC Entertainment the two most bought stocks on Fidelity’s platform. Buy orders for the pair of stocks markedly outpaced those to sell. The demand mirrors optimism on day trader chatrooms as the home-goods retailer was the most mentioned ticker on Reddit’s WallStreetBets while AMC Entertainment trended on StockTwits.

For AMC, the preferred stock would be convertible to AMC shares if authorized by the company and investors. Investors pushed back on an effort to issue 25 million new shares last year.

Bailey Lipschultz and Subrat Patnaik report for Bloomberg News.

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