Beyond Meat Stock Falls 78.5% Following Massive Rally. Is the Party Over?

Beyond Meat (NASDAQ: BYND) has been taking investors on a wild ride recently. The company's share price rocketed higher after it gained the support of meme stock traders in response to reports of sky-high short interest. Some buyers poured into the stock in hopes of triggering a short squeeze, and the resulting trading action helped spur a massive run-up for the company's valuation.

On the other hand, the stock is now down approximately 42% over the last week of trading -- and it looks like hopes for a sustained rebound rally may be fading.

Image source: Getty Images.

Beyond Meat is sinking as the meme rally fades

Beyond Meat stock closed out Oct. 16's daily trading session priced at $0.52 per share. Over the next week of trading, the company's share price climbed as high as $7.69 -- good for a gain of roughly 1,379%. But while the company's share price rocketed higher, the gains appear to have been largely divorced from dramatic fundamental improvements for the company.

Beyond Meat did announce an expanded distribution partnership with Walmart on Oct. 21 to increase the availability of its products in over 2,000 of the retailer's locations, but it's unlikely that the deal was the sole catalyst in the stock's rally.

Instead, the gains appear to have been largely driven by meme stock traders hoping to capitalize on a potentially massive short squeeze. While the stock did post massive gains in response to an influx of buying activity, it appears that many buyers may have been purchasing shares under the assumption that short interest was actually much higher than it actually was.

On Oct. 24, Beyond published preliminary results for the third quarter that subsequently dampened enthusiasm for the stock after meme momentum faded. The company expects that sales in the third quarter will be down approximately 13% year over year; its gross margin is projected to be between 10% and 11%, down from 17.7% in the prior-year period.

Concerns that the company could move to sell new stock and dilute existing shareholders or pursue other financing moves that could have a negative valuation impact may also be factoring into sell-offs. The stock is now down 78.5% from the high it set earlier this month.

Given the surge in popularity among meme stock traders that Beyond Meat has seen in October, it's impossible to state that the stock won't rebound above current levels. Along those lines, the company's meme-stock popularity means that shorting shares would probably be a very bad move. On the other hand, the business is facing major challenges -- and the long-term outlook for its stock isn't promising. So while Beyond's rally could potentially see a resurgence, trying to join the party at this stage in the game is inadvisable for most investors.

Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Beyond Meat and Walmart. The Motley Fool has a disclosure policy.