What happened
Shares of Beyond Meat (BYND +0.55%) soared on Monday morning, and I believe a short squeeze is the only logical explanation, as I'll explain in a moment. As of 11 a.m. EST, Beyond Meat stock is up 12%.
So what
For context, consider that Beyond Meat didn't report any news, it didn't file any documents, and -- as best I can tell -- there weren't any analysts publishing bullish thoughts on the stock. However, in my opinion, many new investors are just discovering what can happen when there's a lot of short interest in a stock, thanks to GameStop stock.
Image source: Getty Images.
GameStop stock has more than doubled today and is up more than 600% this month. The stock was possibly the most shorted on the market, with short interest over 100%. That's a lot of fuel. All it took was a little spark to ignite GameStop stock and send it into the stratosphere.
Today there are a ton of stocks making big moves despite a lack of news. But the common thread is high short interest -- as is the case with Beyond Meat stock. Short interest in Beyond Meat is substantially less than GameStop's was. But short interest is 24% of the stock's float, according to Yahoo Finance. And according to Nasdaq, it would take short sellers more than five days to cover their positions. When you're talking about short squeezes, 24% of the float and five days to cover provide a ripe situation.
A short squeeze for Beyond Meat stock simply lacked a catalyst. Typically squeezes start when something good happens, like blowout earnings or a new product launch. But it seems GameStop's parabolic move is providing enough of a catalyst to unexpectedly start squeezing a bunch of other stocks like Beyond Meat today.
Now what
I would advocate against investing in Beyond Meat stock hoping for a quick buck while the squeeze -- if it is actually a squeeze -- plays out. That's because there's no way to tell how long the music will keep playing or how high the squeeze could send Beyond Meat.
Here's two better takeaways: First, this clearly demonstrates why shorting a stock is so tricky. For those who shorted Beyond Meat stock, there was no way to anticipate that an epic squeeze from GameStop would spark the same here. It must be extremely frustrating to get burned like this.
More importantly, Beyond Meat stock isn't a stock I'd short in the first place. Sure, as with any stock, there's downside risk. But by increasing the distribution of its products, launching new products, and entering new markets, Beyond Meat could provide plenty of catalysts that could lead to further upside. If you're bearish on Beyond Meat's long-term prospects, it seems far better to simply avoid this stock rather than actively bet against it by shorting.
