When I last wrote about Bed Bath & Beyond (NASDAQ:BBBY) earlier this month, I talked mainly about the struggling retailer’s recent financing transaction with Hudson Bay Capital Management, and what it meant for BBBY stock in the future.

In a nutshell, I argued that Hudson Bay was making an asymmetric wager on favorable terms, yet these favorable terms made the stock a losing proposition for outside shareholders.

As this dynamic has not changed, it’s no surprise that investors have continued to avoid shares. Falling below the $1-per share mark on March 20, the stock now changes hands at around 43 cents per share.

Although it may seem tempting to go against the grain here, it remains best to follow the crowd’s lead. Investors have two valid reasons for bailing on BBBY. Contrarians have just one, and pretty soon, that number could fall down to none.

BBBY Stock: Why Bearishness is Still Justified

Now down at sub-$1 per share prices, Bed Bath & Beyond is far cheaper now compared to a month ago, and especially cheaper compared to what it traded for six months ago (more than eight times today’s stock price).

But don’t assume a low BBBY stock price means shares are a bargain at current levels. Again, there are two factors behind BBBY’s drop deep into penny stock territory. First, the slim chance that the home furnishings retailer can pull off a successful turnaround.

While recently upgrading Bed Bath & Beyond’s credit rating (from “D” to “CCC-“), analysts at ratings firm S&P remain pessimistic about the retailer’s prospects for a turnaround. In its latest report, S&P cited the company’s poor vendor relationships, along with inflationary pressures, as factors that could limit BBBY’s ability to improve its operating performance.

Second, even with a turnaround occurs, most of the upside will flow to Hudson Bay Capital Management. Hudson Bay can convert its preferred stock into common stock at a discounted price. Plus, the hedge fund also received warrants to buy additional shares.

The Sole Reason to be Bullish isn’t a Sound One

So, with two good reasons to be bearish, the only reason to be bullish about BBBY stock is the potential for one last short-squeeze. According to Fintel, which tracks short interest, 71.85% of BBBY’s outstanding float continues to be sold short.

In theory, any ounce of positive news could leave the short-side scrambling to close out positions. However, a likely upcoming event could take this “catalyst” (for lack of a better word) off the table. That would be the company’s plans to reverse-split the stock. BBBY is doing this for several reasons, but mainly in order to maintain its NASDAQ market listing.

As InvestorPlace’s David Moadel recently pointed out, a reverse stock split will not change the story for the better with Bed Bath & Beyond. However, bringing its share price back above $5 per share could make it easier to short-sell once again.

In addition, if Hudson Bay converts its preferred shares, then selling the common stock in the open market, the number of shares available to short will increase. Not only will all of this diminish BBBY’s short-squeeze potential. It may leave the stock vulnerable to get hammered again by the short side.

Your Best Move With Bed Bath & Beyond

For individual investors, BBBY continues to be a situation with limited upside and significant downside. The company faces an uphill climb for bringing itself back to the point of profitability. Hudson Bay still stands to reap most of the upside, in the event the company gets back to profitability.

Besides the fact the reverse stock split could diminish its short-squeeze potential, keep in mind too that the meme crowd has continued to shun this stock. I wouldn’t hold my breath waiting for this stock to make one last triple-digit move higher on speculative frenzy.

With the odds stacked against it, there continues to be only one wise move to make with BBBY stock: avoid at all costs.

On the date of publication, Thomas Niel did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.