What happened
Shares of plant-based meat company Beyond Meat (BYND 4.62%) skyrocketed on Friday despite the disappointing numbers it put up for the second quarter. The broader market was trading lower during the session, analysts cut their price targets for Beyond Meat stock, and the company announced layoffs. Yet even with all of those things working against it, Beyond Meat was still up by a whopping 25.4% as of 1:30 p.m. ET. And short interest might have something to do with that bounce.
So what
Let's start with the second-quarter numbers, which it delivered after the close Thursday. Net revenues were down 1.7% year over year to $147 million. U.S. sales were actually up 1% from the prior-year period, but international retail sales plunged by 7%.
On a positive note, Beyond Meat did sell 14.6% more pounds of product than it did in Q2 2021. However, its net revenue per pound was down, which is why revenue was basically flat. But it's important to note that this was by design. Management is trying to get the prices for its plant-based meat substitutes down to what comparable animal protein costs.
That said, the Q2 results weren't pretty and lagged expectations, leading the company to announce it would lay off 4% of its global workforce. But here's where it gets interesting. According to data from Nasdaq, there were 21.5 million shares of Beyond Meat stock sold short going into the Q2 report, more than 40% of the float. That's a quite high level of short interest. And it seems that some investors are using Beyond Meat's announced cost reductions as a reason to jump in, hoping for a turnaround and a short squeeze.
Now what
According to The Fly, multiple analysts lowered their price targets for Beyond Meat stock Friday, including BMO Capital Markets analyst Kenneth Zaslow, who cut his target from $30 per share to $20 per share in part due to concerns about the company's gross margins. I agree this is a pressing problem. Through the first six months of 2022, Beyond Meat's gross margin has been negative, meaning it's spending more to produce its plant-based products than it's selling them for. This isn't sustainable. The company must either raise its prices to cover costs -- at the risk of losing customers -- or it must cut costs somehow while still investing in growth. It's a tough spot to be in. Investors should pay attention to how management handles this for the remainder of the year.
Speaking of growth, Beyond Meat's is slowing. Previously, management believed it would generate 2022 net revenues in the range of $560 million to $620 million. On Thursday, it lowered that guidance to a range of $470 million to $520 million. In summary, it was a rough quarter for Beyond Meat, and I don't share the market's current enthusiasm for the stock.
