A 20-year-old university student has made a gain of around $110million selling a stake in struggling retailer Bed Bath & Beyond, after its share price soared during a month of trading frantic reminiscent of last year’s stock market boom.
Jake Freeman, an applied math and economics student at the University of Southern California, acquired nearly 5 million shares of Bed Bath & Beyond in July, regulatory filings show, after dismal results and the ousting of its managing director caused its share price to fall.
Freeman bought his stake at less than $5.50 per share. On Tuesday, Bed Bath & Beyond jumped to more than $27 a share. As the stock soared, Freeman sold more than $130 million worth of stock from his TD Ameritrade and Interactive Brokers accounts.
The sale of Freeman came at the right time. Shares of Bed Bath & Beyond fell more than 20% on Thursday after investor and meme stock champion Ryan Cohen revealed on Wednesday night that he intended to sell his entire nearly 12% stake in the society.
“I certainly didn’t expect such a vicious rally,” Freeman said in an interview Wednesday. “I thought it was going to be a piece that was over six months old. . . I was really shocked that it went up so fast.
After selling the shares, Freeman went to dinner with his parents in the New York suburb where they live and on Wednesday flew to Los Angeles to return to campus, he said.
Freeman’s initial stake cost around $25 million, which he says was raised mostly from friends and family. He 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.
Freeman also said he had been an intern 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 an article titled “Irreducible Risks of Hedging a Bond with a Default Swap.”
Freeman amassed his more than 6% position in Bed Bath & Beyond through Freeman Capital Management, a fund registered in the cowboy town of Sheridan, Wyoming, according to filings.
After revealing his stance in July, 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 reduce its cash burn rate, significantly improve its capital structure and raise funds”, he added.
Shares of the New Jersey-based chain – known for operating cavernous stores stocked with vacuum cleaners, towels and kitchen gadgets – have risen fivefold over the past month, even after the dismal June 29 earnings report.
It said its sales fell 25% in the second quarter compared to the same period of 2021, while its net loss widened to $358 million from $51 million. Its cash had fallen to $107 million from $1 billion at the start of the year.
Bed Bath & Beyond is one of a handful of meme stocks that rose to popularity in early 2021 but garnered less attention than GameStop, the video game retailer chaired by Cohen, and AMC, the movie theater chain.
The rise in its share price was driven by interest from retail investors attracted by the stock’s low free float and a large number of short sellers betting that the stock price will fall.
Both of these features tend to pique the interest of retail investors frequenting Reddit forums. This means they can try to set up a “short squeeze” by pushing the stock price higher and forcing professional investors to unwind their bearish positions, which only drives the stock higher.
It was a separate disclosure Monday from Cohen, who is also co-founder of pet food retailer Chewy, that sent the stock in tears on Tuesday. He revealed that he had bought a large number of call options in Bed Bath & Beyond – derivatives that can generate a windfall if a stock’s value rises.
Cohen did not respond to a request for comment.