A 20-year-old American university student has made a profit of $110m (£91m) with a month-long bet on the Bed Bath & Beyond meme stock.
Jake Freeman and his family bought nearly 5 million shares of the struggling US home goods retailer at less than $5.50 a share in July for a total outlay of around $25 million.
After a nearly 500% rise in shares, sparked by intense discussions of the stock on Reddit message boards, including several Freeman posts, he sold them for over $130 million, crystallizing the huge profit.
They hit $28 on Tuesday, when Freeman reportedly sold most of his stake. Shares of Bed Bath & Beyond, which trade on the symbol BBBY, fell to $23 on Wednesday and were down another 14% in premarket trading Thursday at $19.70.
Meme stocks are those that skyrocket regardless of a company’s success, thanks to the hype on message boards and social media. They rose to prominence early last year when shares of troubled companies such as US retail company GameStop soared, in part thanks to a campaign to punish hedge funds betting their value would fall.
Although these stocks eventually slid lower, the trend for meme stocks saw a revival this summer, with BBBY stocks leading the way.
Freeman, an applied math and economics student at the University of Southern California, said he was “shocked” by the speed of the stock surge.
“I certainly didn’t expect such a vicious rally,” Freeman told the Financial Times in an interview. “I thought it was going to be a game over six months…I was really shocked it was going up so fast.”
Freeman, who has regularly interned at New Jersey hedge fund Volaris Capital, said he celebrated business success by going to dinner with his parents in the New York suburb where they live.
The student, who at one time owned more than 6.2% of BBBY through his fund Freeman Capital Management according to U.S. Securities and Exchange Commission (SEC) filings, said he raised the $25 million stake from friends and family. His uncle is Scott Freeman, a former pharmaceutical industry executive who helps run the FCM fund.
When his stake in BBBY was revealed last month, he wrote to the company’s board warning that the retailer was “facing an existential crisis for its survival”. “To ensure its survival, BBBY must reduce its cash burn rate, significantly improve its capital structure and raise funds,” he said in the letter according to a copy filed with the SEC.
At the same time, he introduced himself to members of the BBBY Reddit page with an article titled Giving BBBY a chance. “Hi everyone, I’m Jake Freeman,” he said. “I really think the plan proposed by FCM probably provides a great opportunity for BBBY to succeed. It offers a “buy-buy-time”. »
Freeman told Redditors that he “has been in the financial industry since he was 14 and had an interest in finance since he was 12.” He said he was particularly interested in “the problem of planar isoperimetry under Gaussian measurement”.
When he was 16, he co-authored an article titled Irreducible Risks of Hedging a Bond with a Default Swap.
BBBY shares fell in after-hours trading on Wednesday after GameStop chairman and 12% shareholder Ryan Cohen revealed he planned to sell his entire stake.