What happened

Shares of Beyond Meat (NASDAQ:BYND) shot upward early Tuesday morning. As of 11:17 a.m. EST, the stock was trading 19.1% higher, but it had been up by more than 40% before the market opened. The catalyst for the move was a joint press release it issued with PepsiCo (NASDAQ:PEP) regarding plant-based snacks. But the fuel for it had already been supplied by retail investors. The stock was just waiting for a little spark to explode. 

So what

Beyond Meat and PepsiCo are together starting a limited liability corporation called The PLANeT Partnership. The purpose of the new venture is to create and sell plant-based snacks and beverages, leaning on the strengths of each company. While this sounds like an interesting business, investors apparently weren't as enthused about what it could do for PepsiCo -- the beverage giant's stock was up by less than 1%.

A person holds a tablet device projecting images of stocks charts and rising arrows.

Image source: Getty Images.

It would be natural to point out that Beyond Meat is a much smaller company and therefore has more to gain from a deal like this. That's true, but investors should also note that the financial terms of the venture weren't disclosed. How much money can Beyond Meat make from this deal? We have zero idea.

That's what makes Beyond Meat's steep climb so stunning. But a closer inspection might reveal that something else is going on here. Remember, Beyond Meat stock soared Monday as well. It appears the stock caught the attention of the folks over at Wallstreetbets, a community of around 2 million people on Reddit. This group has noticed that if they invest together in stocks with high short interest (investors who have opened positions that profit when a stock goes down), then they can set off a short squeeze. That happens when, as the stock price rises, the aforementioned short investors must buy shares in order to stem their losses. This leads to a snowball effect pushing the stock price even higher as more short-sellers decide to buy shares so they can close their positions, rather than risk even greater losses by waiting.

And Beyond Meat is indeed a heavily shorted stock, with 24% of the float sold short, according to Yahoo Finance.

Stocks like Beyond Meat were already targets of a growing crowd of retail investors looking to play the squeeze. Don't get me wrong, Tuesday's news of a PepsiCo deal was good for the company -- even if how good is up for debate. But in terms of the share price pop, it was merely a catalyst for a move already teed up by particularly ripe trading conditions.

BYND Chart

BYND data by YCharts

Now what

If you're a long-term investor (and I hope you are), then absolutely nothing changed for you Tuesday. For example, if you did your research earlier and decided that Beyond Meat stock wasn't for you, then you probably still won't like it now. After all, the global meat industry the company wants to disrupt is already a trillion-dollar market opportunity. I don't believe adding snacks to the mix greatly improves its addressable market. Don't buy stock in a company you don't like hoping to make a quick buck from the squeeze. No one can know where and when such events will end.

On the other hand, if you're already a Beyond Meat shareholder, then my advice is to hang tight. Sure, Tuesday's move might seem overdone. And when a stock is trading near all-time highs, the temptation to sell it can be strong. However, while a stock may seem overvalued in the short term, selling is almost always the wrong move as long as a company is executing its business plan. 

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.