After struggling for years, Beyond Meat (NASDAQ:BYND) shares saw an unexpected surge last week. Driven by a sudden spike of interest among retail traders, Beyond Meat stock rose by more than 400 percent from lows that had brought it to trade at under $1 per share. What sent BYND shares up so much in such a short period, and will Beyond Meat stock keep going up from here?
Why Is BYND Going Up?
Beyond Meat’s massive price increase over the past week has been the latest in a trend of resurgent meme stock mania. In BYND’s case, the frenzy of buying activity among retail investors appears to have been driven by the fact that roughly 60 percent of the outstanding shares were sold short, allowing for a short squeeze that produced a brief but dramatic spike in prices as short-sellers tried to cover their positions.
Like most meme stocks, BYND’s rise was triggered by a bullish individual trader who posted his thesis on the stock to social media, creating a surge of demand among retail investors. The trader behind the Beyond Meat run-up is named Dimitri Semenikhin, who goes by the online handle Capybara Stocks.
The intense short interest in BYND is unsurprising, as shares had fallen from about $4 at the beginning of the year to trade at under $1 in the first weeks of October. By shorting so much of the stock, however, BYND bears created an opening for the short squeeze, a tactic that has become increasingly popular among retail traders on social media platforms like Reddit since the GameStop fiasco in 2021.
Balance Sheet at Risk at BYND
Unfortunately, Beyond Meat’s numbers still appear to be under significant downward pressure.
In Q2, revenues all but collapsed, falling by 19.6 percent on a year-over-year basis to $75.0 million. This resulted in what has come to be a defining trend in the business, as revenues have been steadily slipping since 2022.
Gross profit also fell preciptiously from $13.7 million in the year-ago period to just $8.6 million in Q2. These results reflect, among other things, Beyond Meat’s decision to cease operations in China as a cost-cutting measure.
Although the net loss fell to $29.2 million in Q2 from the year-ago loss of $34.5 million, management has struggled to make meaningful progress toward generating sustained profits. Indeed, while it did post individual quarters of modest net profitability in 2019 and 2020, Beyond Meat has, quite remarkably, never delivered a 12-month period in which its net income was positive.
These negative trends means the balance sheet is under pressure. As of the end of Q2, liabilities totaled $1.28 billion, with assets totaling only a little over $690 million.
Of particular concern is the fact that the balance sheet shows over $1 billion in convertible senior notes, itself part of the reason for the mass shorting that allowed the recent short squeeze to take place. For reference, the entire market cap of Beyond Meat is only about $167.5 million.
Underlying Beyond Meat’s struggles are deeper market problems that would seem to make a long-term recovery unlikely. Plant-based meat substitute sales as a whole have declined severely, with consumers either switching back to real meat or looking for less processed and less expensive plant-based options.
Meat substitutes, on the whole, also failed to capture consumer tastes long enough to become habitual purchases, preventing businesses like Beyond Meat from developing strong brand moats.
Taken together, these facts make Beyond Meat’s long-term business prospects look quite shaky. Between severely declining revenues, a lack of profitability after many years as a publicly traded business, an excessive balance of liabilities and a fading market, Beyond Meat appears to be facing what amounts to a perfect storm of problems. With none of these issues looking likely to change in the immediate future, the price surge BYND has seen in recent days doesn’t appear to reflect its long-term prospects as a business.
BYND’s Valuation Returns To Earth
At first glance, Beyond Meat doesn’t look like an unreasonable value at only 0.5 times its trailing 12-month sales. The stock’s recent elevated volatility has also brought it to a current price of $2.13, just slightly below the average analyst price target of $2.23.
Considering the performance of the business and its market outlook, though, BYND looks more like a value trap than a deeply undervalued buying opportunity. In order to deliver sustained upside, Beyond Meat would have to have a credible path to sales recovery and eventual profitability. Without such a path presenting itself in the near future, Beyond Meat likely isn’t an actual bargain at its current price.
So, Will Beyond Meat Stock Keep Going Up?
Like most of its meme stock predecessors, Beyond Meat appears to be primed for a downward correction after a massive run-up in its prices. It’s worth noting that past meme stocks have produced smaller secondary spikes weeks, months or even years after first catching retail investors’ attention, but the disconnect between share prices and the underlying businesses tends to eventually catch up with stocks that suddenly surge on nothing more than retail investor optimism or temporary short-selling dynamics.
Indeed, there are already signs of BYND deflating after the run-up caused by shorts trying to cover their positions. Shares reached nearly $4 on October 21st and 22nd as the short squeeze peaked and trading volumes surged. While BYND is still far above where it was earlier in the month, it has fallen considerably from its brief high-water mark. Considering the challenges the business is still facing, Beyond Meat doesn’t appear to be primed to deliver lasting returns.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.