Beyond Meat's (BYND 2.69%) stock went on a wild ride after its second-quarter earnings report on Aug. 4. The plant-based meat producer's revenue declined 2% year over year to $147 million, missing analysts' estimates by $2 million. Its net loss widened from $19.7 million to $97.1 million, while its adjusted net loss of $1.53 per share broadly missed the consensus forecast by $0.39.

For the full year, management expects revenue to rise 1% to 12%, compared to its prior forecast for 21% to 33% growth. The company also announced it would lay off about 4% of its workforce to save $8 million annually.

Beyond Beef sliders and fries.

Image source: Beyond Meat.

Those headline numbers looked ugly, but Beyond Meat's stock unexpectedly surged 22% on Aug. 5 and advanced another 3% the following day. The underlying cause was likely a short squeeze, since over 40% of Beyond Meat's float was being shorted as of mid-July. But should investors chase that volatile rally and expect even bigger gains?

Beyond Meat's high-growth days are over

In 2019, Beyond Meat's revenue soared 239% to $298 million as the plant-based meat craze took off. However, its revenue grew just 37% to $407 million in 2020 as restaurant closures during the pandemic partly offset its retail sales. The top line then increased a mere 14% to $465 million in 2021 as consumers pivoted away from its pricier plant-based products. Some retailers and restaurants also canceled their trials for its products as they struggled with COVID- and inflation-related headwinds.

In the first half of 2022, Beyond Meat's revenue fell 0.4% year over year to $256 million. Its U.S. revenue rose 2.4% to $186 million as the growth of its retail segment offset its declining foodservice business. However, international revenue fell 7.1% to $70 million as declining retail revenue offset the anemic growth of its foodservice segment.

During the second-quarter conference call, CEO Ethan Brown attributed that slowdown to "inflationary pressure on consumer spending." Brown also warned that as inflation drove consumers away from pricier products, the U.S. household penetration rate for plant-based meat products suffered its first sequential contraction in over four years during the second quarter.

Brown admitted that those headwinds were causing "volume leakage" as shoppers pivoted toward animal-based protein and private-label brands. Beyond Meat continues to work with McDonald's, Yum Brands, and PepsiCo to launch new products, but none of those high-profile partnerships are moving the needle yet.

The company's margins are crumbling

Beyond Meat's total pounds sold actually increased 14.6% year over year in the second quarter, but that volume growth was completely offset by a 14.2% decline in its net revenue per pound, caused mainly by liquidation sales and currency headwinds. To make matters worse, sales of Beyond Meat Jerky through its Planet Partnership joint venture with PepsiCo further weakened gross margin.

As a result, the company posted a negative gross margin of 4.2% in the second quarter, compared to a positive gross margin of 0.2% in the first quarter and 31.7% in the prior-year period.

For the second half of the year, CFO Phil Hardin expects gross margin to turn positive again but remain in the "low to mid-single digits" and "well below historical norms." In addition to laying off staff, Beyond Meat will defer some of its spending to stabilize its near-term profitability. Nevertheless, investors shouldn't expect the company to break even anytime soon.

Is the stock undervalued?

With a market cap of $2.4 billion, Beyond Meat is still valued at about five times this year's sales. That price-to-sales ratio is arguably too high for a company that expects to generate single-digit sales growth this year. Its widening losses will also make it a tough stock to own as interest rates rise.

It was easy to gloss over Beyond Meat's weaknesses when it was still generating triple-digit sales growth, but that honeymoon has ended. It now faces an existential crisis as a growing number of competitors enter its crowded niche market for plant-based meat products.

Beyond Meat isn't down for the count, but major setbacks have made it an easy target for the short sellers. The shorts might be getting too greedy right now, but investors shouldn't expect Beyond Meat stock to generate meaningful long-term returns until its growth accelerates, margins expand, and net losses narrow.

Until that happens, Beyond Meat will just be a yo-yo for day and swing traders. Long-term investors should avoid it and buy more promising growth stocks instead.