The investor exodus out of Bed Bath & Beyond (NASDAQ:BBBY) has accelerated in recent weeks. Over the past month alone, BBBY stock has tumbled to the tune of 75.2%.

This rapid move lower may be piquing the interest of bottom-fishers. After all, couldn’t an ounce of improvement with the distressed home goods retailer’s prospects pave the way for an outsized rebound relative to current prices?

Perhaps, but chances are a much less profitable scenario is going to play out. This holds true even if the company’s proposal to reverse-split the stock obtains shareholder approval. Getting the green light to reverse split may indirectly enable the company to once again stave off bankruptcy.

However, rather than creating the opportunity for shares to make up for some of their latest losses, approval of this play may, at best, result in further heavy losses as opposed to a full wipeout. Here’s why.

BBBY Stock and the Proposed Reverse Stock Split

Companies pursuing a reverse stock split commonly do so to avoid a major market delisting. The New York Stock Exchange and the Nasdaq Exchange require issuers of stocks that fall below $1 per share to remedy the situation within a certain timeframe to avoid delisting.

But while a reverse split would prevent Nasdaq-listed BBBY stock from having to move down to the over-the-counter (or OTC) market, this is not why the company’s management is asking shareholders to vote “yes” for its plans to reverse-split the stock in the range of 1:10 to 1:20.

Rather, as InvestorPlace’s Eddie Pan explained on April 10, management needs to reverse-split the stock to facilitate a forthcoming $300 million equity raise, without the resulting increased share count going over the company’s authorized share limit.

Management has also stated that a higher share price will help to maximize institutional investor participation in this at-the-money (or ATM) equity offering. Yet while in theory, this makes sense (institutional investors will not invest in penny stocks), in the case of Bed Bath & Beyond, it’s doubtful such window dressing will help to gin up much interest.

Why Shareholders Lose Either Way

BBBY stock investors face a “pick your poison” type of situation. Voting “yes” on the reverse split is likely to be a negative for the stock. Based on BBBY’s current market capitalization ($144 million), if the ATM offering were to be fully subscribed, this would more than triple the company’s share count.

The dilution from this would, like other recent dilutive equity raises conducted by Bed Bath & Beyond, place additional heavy pressure on shares. As I have discussed previously, reversing splitting this stock to a price above that of “penny stock territory” ($5 per share or more) could also result in additional short-selling of shares.

However, voting “no” on the proposal means even heavier losses. It’s not as if the moribund retailer’s prior fundraising deal with Hudson Bay Capital is still on the table. This offering is the company’s last shot at securing a financial lifeline.

As the company itself put it in the prospectus for the offering, stating, “if we do not receive the proceeds from the offering of securities covered by this prospectus supplement, we expect that will likely file for bankruptcy protection,” adding “holders of our common stock will likely receive no recovery at all” in a bankruptcy scenario.

Pretty Clear Takeaway

Admittedly, if this famed home goods retailer could take any additional cash raised and quickly implement a turnaround to profitability, this could possibly outweigh the impact of additional heavy shareholder dilution.

But given how the turnaround for BBBY has played out thus far, I wouldn’t bank on this outcome. Despite its efforts to reduce costs through layoffs and store closures, cash burn will likely remain high.

The retailer also continues to have a poor reputation with vendors. As a result, Bed Bath & Beyond has resorted to using a vendor consignment agreement with a third party to supplement its inventory.

All signs still point to the situation worsening, not improving, for the company in the near term.

With higher losses ahead, possibly as high as 100%, keep avoiding BBBY stock 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.