Beyond Meat (BYND +0.30%) might be plant-based, but it's given investors plenty of indigestion over the past few weeks.
The stock plunged the week of Oct. 13 as the company made a tender offer for $1.1 billion in convertible debt, signaling that it was about to massively dilute existing shareholders. On Oct. 16, it completed the tender offer, saying it had created 316 million new shares, essentially growing shares outstanding by nearly 5x.
From Oct. 10 to Oct. 16, the stock lost 74% to close at $0.52 on extraordinarily high volume, showing that the tender offer seemed to spook investors. The company was likely desperate to eliminate the debt, even though it would dilute shareholders several times over, making the odds of a comeback even longer.
However, something surprising happened once the tender offer was complete and those investors were free to sell their shares. The stock was flooded with liquidity, and trading volume spiked again, rising past 400 million. The stock rose 24% on Friday, Oct. 17.
Over that weekend, an argument seemed to gain steam on social media that Beyond Meat had very high short interest. Investors on Reddit and X declared it the next target of a collective short squeeze, trying to make it the next GameStop (GME 1.28%). Other investors argued that the debt-to-stock conversion the week before greatly improved its financial prospects and set it up for a comeback. On Tuesday, the company said that Walmart would expand the number of Beyond Meat products in its stores, which seemed to help the rally.
Those factors combined to send the stock up as high as an intraday peak of $7.69 on Oct. 22, or a gain of 1,378% in less than a week, before the rally fizzled. It has fallen nearly every session since then and closed at $1.65 on Oct. 30.
Investors wondering whether Beyond Meat is the next great meme stock might be disappointed to learn the answer. Here's what Beyond Meat's missing from the meme stock equation.
Image source: Beyond Meat.
Beyond Meat's fatal flaw
Meme stocks are generally thought of as brand-name stocks that catch fire among a group of investors on social media who pump the stock up several times beyond its original value.
Those characteristics are true of Beyond Meat, but it's missing another key component. There's typically some kind of plausible fundamental argument underlying the meme stock buzz.
GameStop, the original and best-known meme stock, was fueled by a massive short squeeze and gamma squeeze at the time. But the stock was also cheap based on some metrics, and valued like it was going out of business, even though it generated positive free cash flow in 2020. The company was also hit hard by the pandemic, which was a temporary headwind.
AMC Entertainment (AMC +1.97%), the world's largest movie theater chain, also represented a declining business model that had been hit hard by the pandemic and therefore was seen as temporarily beaten down.
Both those stocks may have aging business models, but are still operating today.
On the other hand, Beyond Meat doesn't look undervalued, and it's not the victim of a declining business model. Instead, its demise has been the result of bad product-market fit, meaning that customers don't want to buy its product. Its unit economics have proven untenable as well, as the company has reported a negative gross profit in several quarters. Its product is expensive, and it can't make it cheap enough to entice more customers to buy it.
The decision to convert the debt to stock seems to have come out of desperation, as the company had $1.1 billion in convertible debt maturing in 2027, and roughly $700 million in assets on its balance sheet. Its revenue has also been declining, and losses continue to mount.
NASDAQ: BYND
Key Data Points
Is the party over?
The marketplace is a crucible for new ideas, and the Beyond Meat experiment has lasted for several years. Consumers have weighed in, and not enough of them seem to be interested in buying the product. A lot would have to change with the business in order to close that gap.
Given that, Beyond Meat is likely to head lower as the prospects for the business continue to look dimmer, and its cash will likely run out.
