Investors Flock Back to Beyond Meat -- Is It Hype or Hope?

Beyond Meat (NASDAQ: BYND) stock just posted another day of explosive gains. The company's share price surged 36% in today's daily session despite the S&P 500 falling 0.6% and the Nasdaq Composite declining 0.4%. Despite today's valuation surge, the stock is still down 73% over the last year.

While today's rally comes on the heels of some significant sell-offs for the stock, it's impressive and eye-catching nonetheless. Is confidence in a comeback for Beyond Meat building again, or will the passage of time show that today's gains were little more than a hype-driven flash in the pan?

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Beyond Meat rallies as meme momentum regains steam

Beyond Meat stock has been highly volatile in recent months, with the stock briefly posting a massive valuation surge thanks to a swell of support from meme-stock traders before coming back to Earth. Now, it looks like another near-term rally is picking up steam.

As reflected by substantial valuation declines for the levels of major indexes today, investors broadly adopted risk-off trading in the daily session-- but that didn't stop Beyond Meat and some other big-name meme stocks from banking significant rallies. GameStop ended the day's trading in the green and is now up roughly 13% over the last week of trading.

With its last quarterly report, Beyond Meat's sales declined 13.3% year over year to land at $70.2 million. The business posted a loss of $110.7 million and a gross-profit margin of 10.3% in the period. The company closed out the quarter with cash and equivalents totaling $131.1 million and total long-term debt of $1.2 billion.

Should investors buy Beyond Meat stock or short it?

Beyond Meat will likely be able to cut down on some of its operating expenses by reducing its labor force and pursuing other efficiency initiatives, but the long-term outlook for the business is still fraught unless the company can significantly improve its gross margins. With the business burning through cash at a rapid pace, Beyond Meat could be at risk of going bankrupt within the next several years. On the other hand, that doesn't mean that the stock couldn't see more explosive rallies in the short term.

In October, Beyond Meat's share price rocketed from $0.52 per share to $7.69 per share in the span of a week. News that the company had signed an agreement to expand its partnership with Walmart played a role in the rally, but purchases from meme stock traders and investors aiming to trigger a short squeeze were bigger catalysts.

Beyond Meat's big valuation gain today appears to be unconnected to material changes for the underlying business. Taking a bullish long-term position in Beyond Meat looks risky right now, but that doesn't mean that betting against the stock with a short position would be a smart move. As shown by the stock's massive but short lived rally last month, bullish momentum stemming from meme-stock trades could be enough to spur painful losses for those holding short positions.

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.