A failing company's stock just surged over 1000% on Wall Street: Here's why

Beyond Meat's stock opened at around $0.6 on October 16 and surged to about $7.4 on October 22, marking a 1,067 per cent jump in five sessions

Shares of Beyond Meat, a loss-making company based in the United States, have skyrocketed over 1,000 per cent in the past five trading sessions, driven by retail enthusiasm surrounding the stock’s newfound meme status.

 

A meme stock is a share that gains popularity among retail investors on social media, often experiencing extreme price volatility.

 

True to this definition, Beyond Meat’s stock opened at around $0.6 on October 16 and surged to about $7.4 on October 22, marking a 1,067 per cent jump in just five sessions. However, it later fell and closed at around $3.6 on Wednesday. 

What drove the rally?

According to a report by Business Insider, the rally began after a Dubai-based trader, Demitri Semenikhin, said on Reddit last week that he had acquired a 4 per cent stake in the company.

 

On Sunday, he also posted a video titled Why I’ve purchased 4 per cent of Beyond Meat stock.

 

“Beyond sold shares to new investors for near $3 per share and used the money to repay its debt. This move was bullish for Beyond, removing its previously high risk of bankruptcy and greatly strengthening its balance sheet,” he said, as quoted by Business Insider.

 

The rally gained further momentum when investment firm Roundhill Investments on Monday added Beyond Meat to its meme stock exchange-traded fund (ETF). The surge was amplified by the company’s announcement on Tuesday of a new distribution partnership with Walmart.

 

Reality check for investors

Beyond Meat’s fundamentals, however, paint a grim picture. The company continues to struggle with weak sales amid declining demand for plant-based meat, BBC reported. It has not posted a quarterly profit in more than five years.

 

Its stock also remains one of the most shorted on Wall Street, with short interest at about 81.8 per cent of its free float, Reuters reported, citing data from Ortex.

 

An expert told the BBC that Beyond Meat was, until recently, being viewed as a company on the brink of collapse.

 

“Loss-making, heavily shorted, meme-able ticker and easy to understand — the classic meme cocktail. Beyond now has hundreds of mentions across retail channels. Whether this goes to infinity and beyond or just serves up another slice of fake-meat humble pie, retail is clearly having meme-fun again,” another analyst told Reuters.

 

A reminder of meme stock mania

 

The Beyond Meat rally has also reignited concerns about overvalued and highly speculative trading in meme stocks, reminiscent of previous cases such as GameStop and AMC.