What happened

Shares of B&G Foods (BGS -0.28%) rose an incredible 38% in early trading today. However, that gain didn't hold, with the stock up by a far less impressive (though still pretty material) 10% at around 2 p.m. EST on Monday. There wasn't any notable news out of the company, but Wall Street seems to be gyrating in strange ways lately, and B&G is caught up in the action.

So what

B&G Foods is a modest-size food seller that, essentially, buys cast-off brands from larger companies and smaller, independent brands that could use some extra attention. This acquisition-led business approach has left the company with a heavily leveraged balance sheet.

To put a number on that, B&G's debt-to-equity ratio at the end of the third quarter of 2020 was roughly 2.1 times, while Kraft Heinz, which has openly struggled with its leverage (cutting its dividend to free up cash for debt reduction efforts, among other things), has a ratio of just 0.6 times or so.   

Blocks spelling out calm and panic.

Image source: Getty Images.

And still, B&G Foods' stock price has doubled over the past year, largely because of the pandemic-driven sales boost that has aided most food makers. Investors looking at the rally and the company's industry position, including its leverage, have been betting that the stock is ripe for a decline when sales return to more normal levels.

This has led to a material amount of short interest, or people who have sold the stock without owning it in the hope it goes down, allowing them to buy it at the lower price to cover their sale. Wall Street has been filled with news about short-sellers being forced to buy stock (even if it means they will lose money) just to close out positions that are moving against them. This unfortunate situation is called a short squeeze. The big name here lately has been GameStop, but other companies are starting to see the same type of volatile price action, like B&G Foods.    

Now what

B&G Foods is not a great stock for conservative investors, given its debt-heavy approach to the food space. The current tumultuous trading, meanwhile, is even more disconcerting, given the widespread nature of the short squeezes taking shape in the market right now. It's almost like a feeding frenzy, and B&G is just stuck in the middle of it all.

Normally, long-term investors shouldn't read too much into one day's trading action, but in this case, it's probably a sign of increasing risk. Extra caution is in order, even if you fully understand B&G's business model.