Bank of America ends coverage of GameStop and moves Bed Bath and Beyond to 'no rating' as analysts say the meme stocks no longer trade on fundamentals
- GameStop and Bed Bath & Beyond shares are no longer trading on fundamentals, according to Bank of America Securities.
- The investment bank said it will stop covering GameStop and will suspend its rating Bed Bath and Beyond.
- Neither company has issued material updates or news to justify the surge in their stock prices, said BofA.
Shares of GameStop and Bed Bath & Beyond are no longer trading on fundamentals, Bank of America Securities said about the so-called meme stocks in telling clients it will ditch coverage of the video-game retailer and suspend its buy rating on the housewares seller.
There's been a boom in recent trading activity in GameStop, Bed Bath & Beyond, and other stocks favored by retail investors on social media sites such as Reddit's Wall Street Bets forum. Retail traders this week have contined to fight against hedge funds shorting shares of movie-theater chain AMC Entertainment. BofA noted that GameStop's price had appreciated by 56% over seven sessions and Bed Bath & Beyond stock had soared by 62% in one session.
But neither company has reported any material news or updates that would serve as a rationale for the moves, it said.
For GameStop, the investment bank in recent months has been tracking the impact of non-fundamental factors on its shares, including the number of conversations on Reddit relating to the company, stimulus payments from the government, trading volumes, and short interest.
"All these factors have shown a tight relationship, and large increases have corresponded to several big surges in GME's share price," wrote analyst Curtis Nagle in a June 3 note.
"The recent increase in GME's share price lines up with big moves by other 'meme stocks' such as [BlackBerry] and AMC. This was also the case in late January of this year," he wrote, referring to the massive surge in GameStop's price as retail investors forced short-squeezes on hedge funds betting against the stock.
With those factors in mind, BofA said it was terminating coverage of GameStop due to a reallocation of resources. BofA had an underperform rating on shares of the company.
Meanwhile, Bed Bath & Beyond's announcement Wednesday about launching three new private label brands was, in the bank's view, not material and investors had already expected the news, the analyst wrote.
"Along with meme stocks like GME, BBBY has experienced a surge in trading [volumes] and share price, similar to trends in late January," said Nagle in a note separate from the one on GameStop.
"As a result, we move to No Rating as we believe shares of BBBY are no longer trading on fundamentals. Investors should no longer rely upon our previous investment opinion or price objective," Nagle said.