Is Beyond Meat Getting Ready to Squeeze Higher?

Beyond Meat (BYND), one of the leading companies by market share in the plant-based meat category, has been having a rough ride lately. Shares of BYND, which currently commands a market cap of $779.71 million, have plummeted by nearly 29% over the past month alone. That's a stark underperformance compared to the Nasdaq Composite's ($NASX) decline of just 2.5% over the same period. 

Why Beyond Meat Stock is Sliding

Weak Q2 Results: While the stock is a long-term underperformer, a poorly received earnings report in early August is one trigger that contributed to the recent downside in BYND.

The company reported net revenues of $102.1 million for the second quarter, down 30.5% year-over-year and short of the consensus estimate for $108.4 million. In fact, over the past five quarters, BYND has reported net revenue growth on only one occasion (Q1 2023).

The declining revenues can be attributed to a slowdown in demand for the company's products and a persistently high-inflation environment. Year over year, Beyond Meat reported a 23.9% drop in the volume of products sold, and an 8.6% decline in net revenue per pound. 

In particular, revenues in the U.S. market - which contributed almost 60% of total net revenues for the quarter - fell even more sharply, down 40.1% from the prior year to $61.2 million.

However, the company significantly lowered its losses by about 46% from the previous year to $0.83 per share, which narrowly exceeded the consensus estimate for a loss of $0.84 per share. Here, the company's efficient cost-management measures came into play, as operating expenses declined by 33% from the prior year to $56 million, marked by a notable drop in selling, general and administrative expenses. 

Notably, BYND's bottom-line losses have come in narrower than estimates on three occasions out of the past four quarters - but the company is not free cash flow positive, and generated a cash outflow of $88.34 million from its operating activities in Q2 2023. Additionally, long-term debt rose by 2% from the beginning of the year to $1.2 billion.

Consumer Demand Headwinds: Outside of its operational metrics, a broader market trend that could be a bigger headache for Beyond Meat are the shifting consumer behavior and consumption patterns towards meat-replacement products in general. 

Notably, a September 2022 industry report from Deloitte showed stagnating sales for plant-based meats overall, as consumer perceptions generally turned less positive. The data indicated that fewer consumers viewed plant-based meat alternatives as healthier, more environmentally sustainable, and worthy of a premium price in 2022 relative to 2021.

Beyond Meat's growth prospects in overseas markets could be limited, too, with traditional meat consumption still quite prevalent across the globe. According to a Statista Consumer Insights Report, 86% of countries out of the 21 countries surveyed said that their daily diet contained meat.

High Short-Interest Can Lead to a Surprise Rise in the Stock

Given the company's relative lack of operational diversity and long-term share price underperformance, it's not particularly surprising that short sellers have targeted Beyond Meat for more downside. Short sellers borrow shares (typically from an institutional lender) in the anticipation of buying them back at lower prices after a decline. Then, shorts return the borrowed shares at that lower price, and pocket the difference as their profit. 

The current short float for BYND is a whopping 35.58%. This makes it the 3rd most heavily shorted stock on Nasdaq ($NASX) , behind Novavax (NVAX) and Edible Garden (EDBL).

This means BYND is highly susceptible to a “short squeeze.” That's when a positive headline or some other upside catalyst spurs short covering activity en masse, and the increased buying prompts other short sellers to cover their own positions to lock in profits or limit potential losses. Short squeeze rallies can be fast and sharp, and they can last for quite a while as more and more shorts gradually capitulate to the upside “squeeze.”

Analyst Estimates

Analysts remain convinced about Beyond Meat's ability to rein in its bottom-line losses. Wall Street is looking for a 47.5% improvement in current-quarter earnings and an overall increase of 40.4% for FY 2023.

However, analysts remain skeptical overall about Beyond Meat stock, with a consensus rating of “Moderate Sell” from the group. Out of 12 analysts covering the stock, 6 have a “Hold” rating, 1 has a “Moderate Sell” rating, and 5 have a “Strong Sell” rating.

Final Takeaway

While the stock may seem like an obvious candidate to keep declining on the charts in the near term, investors should be careful of jumping on the bandwagon to short Beyond Meat - particularly as the stock bounces back from a temporary oversold condition after its earnings-related slide. The operational challenges might be formidable, but as long as the stock remains a universal favorite target of short sellers, the possibility of a short-squeeze rally is unusually high for BYND.