A 20-year-old college student has made about $110 million in profit selling a stake in struggling retailer Bed Bath & Beyond after its stock price surged during a month of frenzied trading reminiscent of last year’s meme stock boom.
Jake Freeman, a major in applied mathematics and economics at the University of Southern California, acquired nearly 5 million shares in Bed Bath & Beyond in July, official documents show. gloomy earnings and the ousting of the chief executive sent the stock price plummeting.
Freeman bought his share for less than $5.50 a share. On Tuesday, Bed Bath & More rose to over $27 a share. As the stock rose, Freeman sold over $130 million worth of shares from his TD Ameritrade and Interactive Brokers accounts.
Freeman’s sale was well timed. Shares in Bed Bath & Beyond fell more than 20 percent on Thursday after investor and meme stock champ Ryan Cohen announced on Wednesday night he planned to sell his entire nearly 12 percent stake in the company.
“I certainly didn’t expect such a vicious rally to the top,” Freeman said in an interview on Wednesday. “I thought this was going to be a six-month play… I was really shocked that it went so fast.”
After selling the shares, Freeman went to dinner with his parents in the New York City suburb where they live, and on Wednesday he flew to Los Angeles to return to campus, he said.
Freeman’s initial bet cost about $25 million, which he said was largely raised by friends and family. He invested for years with his uncle, Dr. Scott Freeman, a former pharmaceutical director. The two recently built an activist stake in a publicly traded pharmaceutical company called Mind Medicine.
Freeman also said he spent years interning at a New Jersey hedge fund, Volaris Capital. Just before his 17th birthday, Freeman and his founder, Vivek Kapoor, a former director of Credit Suisse, published a paper entitled “Irreducible Risks of Hedging a Bond with a Default Swap”.
Freeman acquired his more than 6 percent stake in Bed Bath & Beyond through Freeman Capital Management, a fund registered in the cowboy town of Sheridan, Wyoming, according to the filings.
When he announced his position in July, Freeman sent an uncompromising… message at the shopkeeper’s plate. The company, he said, “was facing an existential crisis in order to survive”. It had to “lower its cash burn rate, drastically improve its capital structure and raise money,” he added.
Shares of the New Jersey-based chain — known for operating cavernous stores stocked with vacuum cleaners, towels and kitchen gadgets — have increased fivefold in the past month, even after its grim June 29 earnings report.
It reported that second quarter revenues were down 25 percent compared to the same period of 2021, while net loss rose to $358 million from $51 million. The cash position had shrunk to $107 million, from $1 billion at the start of the year.
Bed Bath & Beyond is one of the few meme stocks that gained popularity in early 2021, but has received less attention than GameStop, the video game retailer chaired by Cohen, and AMC, the movie theater chain.
The share price gains have been driven by the interest of retail investors, attracted by the stock’s small free float and a significant number of short sellers who are betting that the share price will fall.
These two features typically attract the attention of retail investors who frequent Reddit forums. It means they can try to create a “short squeeze” by driving the stock price higher and forcing professional investors to close out their bearish positions, which only pushes the stock higher.
It was a separate revelation Monday from Cohen, who is also a co-founder of pet food retailer Chewy, which flipped the stock on Tuesday. He revealed that he had bought a large number of call options in Bed Bath & Beyond – derivatives that can provide a windfall as a stock rises in value.
Cohen did not respond to a request for comment.