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Is Bath & Beyond stock better than a lottery ticket?
Bed Bath and Beyond stock analysis. BBBY stock
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Let’s put the probability of Bed Bath and Beyond avoiding bankruptcy at 5% and let's say if that happens the stock goes to 5 bucks.
Under that scenario you’d make a return of 1150% if you bought the shares at 45 cents which sounds like a great return.
But we can calculate the expected value of that bet by multiplying the probability of it happening by the payoff.
And the expected value of that bet is around 50 cents. That means for every $1 you invest in Bed Bath and Beyond you’d be expected to lose 50 cents on average.
Meanwhile, the expected value of US powerball is 32 cents which means that for every $2 ticket you buy you can expect to lose 1.68 on average. And that works out to an expected value of 16 cents for every 1 dollar invested.
So in that scenario Bed Bath and Beyond stock is a better bet than powerball.
However, let’s say the chance of Bed Bath and Beyond avoiding bankruptcy is only 1%. In that scenario, the expected value drops to only 10 cents which means you’d be better off playing powerball than buying Bed Bath and Beyond stock.
So it really depends on what you think the probabilities are.
But neither odds for Bed Bath and Beyond stock or US powerball look very appealing which is why I won't be buying either.
But these are my personal opinions not financial advice, for more detailed investing research join our newsletter at overlookedalpha.com
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