Beyond Meat‘s (NASDAQ: BYND) unbelievable winning streak continued on Wednesday, as the stock opened up at US$6.16, jumping 70% from yesterday’s close. Going back to its bottom last Thursday, the stock has now gained more than 1,000% in less than a week, making Beyond Meat the latest meme stock to go “to the moon,” as its backers like to say.
What sparked the rally was a tender offer last week for US$1.1 billion of Beyond Meat’s convertible debt. That created 316.2 million new shares of the stock, increasing shares outstanding by nearly five times.
The news was initially received poorly, as massive dilutions are generally bad for shareholders, and the stock slumped through most of last week. However, the debt conversion removed a significant financial obstacle for the company. At US$1.1 billion, that debt, which was due in 2027, exceeded the company’s total assets of less than US$700 million as of the end of the second quarter, meaning Beyond Meat would not have been able to pay it back.
The move also significantly increased liquidity, allowing a wave of new meme traders to pile into the stock. The stock’s high short interest — 54% of the float was sold short, as of the end of September — helped incentivize the collective buying.
Source: Beyond Meat
Can Beyond Meat keep surging?
At this point, Beyond Meat’s surge is entirely divorced from its fundamentals, and there’s no reason the stock can’t keep climbing if traders continue to pump it up. It seems to be benefiting from a gamma squeeze. Because demand for call options is so high, market makers have to buy the stock to offset the risk of selling those options.
The stock will peak at some point, but that process could play out for the next several sessions if interest from traders is there. Trading volume has surged with 2 billion shares changing hands yesterday, and more than 800 million shares had been traded before 10:30 a.m. ET this morning.
Investors should keep in mind that even as the stock is soaring, the business still looks fundamentally broken. Beyond Meat’s revenue is declining, and the company is still significantly unprofitable. Generally, that combination eventually leads to bankruptcy.
It’s also hard to envision an external catalyst that would change Beyond Meat’s fortunes. Plant-based meat isn’t new at this point. Its potential customers have tried its product, and many of them have decided not to continue buying it.
Beyond Meat announced expanded availability at Walmart (NYSE: WMT) yesterday, but that’s unlikely to save the business over the long term. While the short squeeze could persist, long-term investors should stay away from this broken business.
