Beyond Meat (BYND +3.23%) has become the latest stock to receive the rocket emoji treatment.
The maker of plant-based meat products jumped more than 400% over a two-day span, driven by a social media frenzy that fueled a short squeeze in the new meme stock.
Trading volume topped 1.7 billion shares on Tuesday. That means each share changed hands more than four times, indicating an incredible level of interest in the stock.
Though not much has changed with Beyond Meat's fundamentals in the last week, the trading activity seemed to be triggered by the company's tender offer for $1.1 billion in convertible debt. This offer created 316.2 million shares of Beyond Meat stock, growing shares outstanding by nearly five times.
Typically, a dilution of that size is not a bullish signal. The stock plunged last week, reflecting concerns about massive dilution and desperation as the company made the tender offer to get the debt off its books. At the close of the second quarter, Beyond Meat had less than $700 million in total assets, much less than its convertible debt.
Last week, the stock fell from $2.01 on Oct. 10 to $0.52 on Oct. 16, losing nearly 75% following the tender offer announcement on Oct. 13. However, since then, the stock jumped 596% to $3.62 through Oct. 21, primarily driven by a short squeeze generated on social media.
Image source: Beyond Meat.
Can Beyond Meat stock keep climbing?
Given the momentum in the stock, anything can happen to Beyond Meat in the short term. Parabolic surges, especially in meme stocks, tend to attract more investors as the stock gains. Some investors on platforms like X and Reddit are calling for the stock to return to its earlier heights when the share price was in the triple digits shortly after its IPO, when sales were booming before the pandemic.
On some brokerages, the stock, which had about 54% of its float sold short at the end of September, is no longer available to borrow to short. Meme traders are hopeful that the gains will force short sellers like Ken Griffin's Citadel to cover. Many of the new Beyond Meat bulls see the event as a repeat of the GameStop short squeeze, which kicked off the meme stock run.
However, Beyond Meat's fundamentals are seriously weak, even after the removal of the convertible debt. Unlike fellow meme stock Opendoor Technologies, which would benefit from an improving housing market, there isn't really a macroeconomic shift that would favor Beyond Meat.
People have tried the product by now and have generally decided they don't want to continue buying it. The company is seeing revenue decline, and it continues to lose money.
In the second quarter, its revenue fell 19.6% to $75 million. For several quarters, it had a negative gross profit, meaning it was losing money even before accounting for indirect costs like management salaries and marketing. Not only has Beyond Meat not caught on with consumers, it costs too much to make it.
In the most recent quarter, the company finished with an operating loss of $34.9 million, or an operating margin of negative 46.6%, showing it's still not close to profitability.
NASDAQ: BYND
Key Data Points
Can Beyond Meat make you a millionaire?
It's possible that Beyond Meat could make a few millionaires in the current rally, especially those who get lucky with options, but it's likely to leave more investors burned.
The short squeeze will eventually break, and there is little in the way of fundamentals propping up the stock. Beyond Meat is now nearly double what it was worth before the tender offer news initially crushed the stock.
The business appears to be headed for bankruptcy. While it could tap the surging price to raise money in an equity offering, the company's problem isn't a lack of funding. It's that, like so many failed consumer products in the past, people have tried it and aren't interested in buying it.
