Good Morning Toasters!

Heyy friends! Happy weekend! The indices saw profit booking, snapping its 8-day winning streak, as the headlines indices were down in varying proportions, with the recent resurgence of the dollar index causing some jitters, after 2 months of weakness.

In today’s issue, we look at the stock performance of Bed Bath & Beyond, which has just gone through a short squeeze, similar to Gamestop. Remember that? The company’s struggling, but a 21-year-old investor just made 5x his investment. Woah!

The OG Tech Stock to list, Zomato is up 70% in less than a month, as investors change their perception of the cash-guzzling business. Let’s analyse the script from a fundamental/technical view?

Market Watch

Nifty 50: 17,758.45 | -198.05 (-1.10%)
FII Net Bought: INR 1,110.90 crore

Sensex: 59,646.15 | -651.85 (-1.08%)
DII Net Sold: INR 1,633.21  crore

Global Company News

Bed, Bath & Beyond pulls a Gamestop, just about (?)

Background

• Stuck in a never-ending free-fall, the OG feel-good player, Bed Bath & Beyond is having a rough pandemic, firing its CEO in May, yo-yoing between revealing heavy financial losses, facing a strategic and financial crisis, and dealing with sagging growth
• Having on-boarded its CEO from rival Target in 2019, the company embarked on an ambition revamp to arrest sagging growth, monetising real estate assets (selling USD 250 Mn in total), while off-loading non-core businesses like Christmas Tree Shops and Cost Plus World Market Chains
• The company then kick-started a business transformation of sorts, using the proceeds to declutter stores, scale back discounts and replace national brands with new private label goods
• Weirdly enough around the same time, the board also approved an ambitious buyback plan to the tune of USD 1 Bn, significantly denting the company’s cash reserves (odd that a struggling company performs such an action)
• While the company aimed to execute the right strategies, changing macro conditions played spoilsport, as supply chain challenges delayed delivery of products, coupled with a high mismatch in inventory as the move into private label failed to connect with consumers
• In true American investing fashion, billionaire investor & founder of Chewy Inc, Mr. Cohen took a ~10% stake in the company at the start of the year, eventually forcing the board to rejig its plans, and onboard three additional board members (linked to him)

What’s up?

• In true bear market fashion (jk jk), after trading around USD 6 / share at the start of August, Bed Bath & Beyond stock touched highs of USD 30 this week, on the news of Mr. Cohen’s purchase of calls options, underlying 1.7 Mn shares of the company, prompting individual investors to join the bandwagon
• Call Options explainer: give investors the right, not the obligation to purchase shares at specific prices by a stated date; likewise, the stocks rally was also fuelled by a short squeeze on the shares (remember that!!)
• The company’s financial & business condition (much like AMC) had investors betting on the price continuing to fall, leading to high short positions, which provide investors with the option to sell now and buy later at lower prices, thereby making a profit
• As the shares began rising, short sellers were forced to cover their positions, pushing the stock to go even higher; after having touched highs of USD 30 on Wednesday, the stock’s seen consecutive days of 20% / 35% drops, as Mr. Cohen’s sale disclosure was released (he plans to sell his entire 10% stake)

Interesting! Gamestop revived, so will Bed Bath & Beyond? 

• Bonds tied to the company have rallied, in hopes that an increased stock price will help the company in raising equity capital (cash at present is ~USD 100 Mn, with USD 375 Mn required to remain solvent), much like how AMC survived after their short squeeze
• The company’s trying to get its house in order, reducing burn by ~USD 100 Mn, conserving cash by pushing back on planned expenditures, while fighting to raise much-needed capital

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Around the World 🌎

• Big deal for Big Ten: The Big Ten, one of the top two athletic conferences of college football entered into the richest ever seven-year contract with Fox, CBS and NBC. The deal, valued at  $7.5 billion, will result in all its big games being rotated among multiple platforms,  just like Super Bowl does in NFL. Last year, the other top giant Southeastern Conference entered into a similar deal with Walt  Disney Co. and is expected to bring around $800 million annually from media rights from the year 2024
• Streaming platforms surpass cable viewing: There is finally some good news for streaming platforms like Netflix, YouTube, HBO Max and Amazon Prime Video because for the first time Americans have spent more time watching content on their platforms over Cable TV. This is a huge validation for them since they incur heavy expenditures on creating content and bringing in new schemes for attracting new subscribers
• Will the energy crisis end?: The energy crisis continues as Europe is already facing severe fuel shortage due to the Russia Ukraine war and Asian countries are building on their energy reserves in anticipation of an increase in demand. To add to the worries,  Australia,  one of the world’s largest natural gas exporters, could be imposing curbs on its exports soon. The country fears a big domestic shortfall next year and is hence directing its exporters to give priority to domestic demand

Stock Overview

Zomato up ~70% in less than a month

Fundamentals

• After touching an all-time low of INR 41 on July 27, and probably also reaching its fair value (not according to famed valuation expert Aswath Damodaran, who reduced his per-share value even more), the OG Tech stock to list has zoomed ~70% in less than a month, as investors have changed opinions
• A quarter that indicated the management’s changing tract/focus, walking the rope of profitability, and coupled by delivering improving numbers hinting towards a longer-term sustainable business model, resulted in investors taking note
• Likewise, the highly picky Mutual Funds have also increased their stake in the name, touching 3.75% from 2.71% in the previous month, probably indicative of value picking by investors (or buying when the price is right)
• Even the super smart folks on Dalal Street, the brokerage analyst community have a net consensus buy on the stock, with 13 Analysts rating it as a strong buy, 4 Analysts with a Buy, while 1 Analyst has a sell recommendation, with the average target price of INR 120

Technical

• Prices had been trading in a bearish flag pattern (with 2 rising trendlines). Before giving a breakdown and slumping over 8% today
• Prices might find support around the green band (54-55) and resistance around the red band (67-69)
• Prices are currently moving above all 3 short-term moving averages (10, 20 & 50-day Simple Moving Averages)
• Prices might tend to reverse around the 3 moving averages as they can act as strong demand zones, a reversal might lead to a good move in Zomato

What else caught our eye? 👀

Inox x PVR love story has a villain:

• The Competition Commission of India has been approached by CUTS, Consumer Unity & Trust Society to investigate the merger of PVR and Inox Leisure which will make them India’s largest film exhibition entity
• The main point of concern being consumers might have to pay higher ticket prices and face deterioration of food and services due to their monopoly
• The merger would lead to PVR -Inox capturing more than 50% of the market share in at least 19 cities

Vodafone’s new CEO has a tough job ahead :

• Vodafone Idea is currently facing a lot of financial challenges due to its massive debt amounting to $ 1.99 trillion and also the recent purchase of 5G spectrum in the auction
• As Mr Akshaya Moondra joins the company as its CEO, he first has to find a way to raise $ 20,000 crore from external investors for the survival of the company
• Huge challenges lie ahead as it is already losing market share to its two biggest competitors Reliance Jio and Bharti Airtel

Educational Topic of the day

What is RSI?

• RSI stands for Relative Strength Index. It’s a momentum oscillator introduced in the late 1970s
• It provides stock and F&O traders with signals about the overall trend (Bullish or Bearish) of the security
• Normally securities below RSI 30 are considered “oversold” and securities above RSI 70 are considered “overbought”. But these values vary from trader to trader
• Traders tend to expect a reversal of trend as the security breaches the 70 or 30 RSI on technical charts
• For eg: A trader will look to short a stock A once it crosses RSI 70 and makes a Bearish Engulfing pattern

Edited by Raunak Karwa

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com