Meme stock fervor resurged on Monday, reminiscent of the GameStop and AMC Entertainment spikes during the height of the COVID-19 pandemic. Leading the charge this time was Beyond Meat, whose shares skyrocketed by 127.7% amid a dramatic short squeeze.

The plant-based meat producer has endured a turbulent five years on the stock market, being one of its poorest-performing stocks during the period. Despite Monday’s rally, its value remains more than 99% down compared to five years ago.

What Sparked Beyond Meat's Sudden Rise

The surge in Beyond Meat’s stock was triggered by a coordinated short squeeze, largely initiated on social media platforms such as Reddit and X. Posts highlighted the company as the most shorted stock in the U.S., ripe for a squeeze. By the end of September, 54% of the company's float was sold short.

On Monday, trading volume surged past 1 billion shares, dwarfing the average daily volume of under 20 million. Fueling this frenzy was last week’s announcement of a tender offer by Beyond Meat to exchange shares for convertible senior notes. This move created 316,150,176 new shares, expanding the number of shares outstanding over fourfold. The stock initially reacted negatively, tumbling nearly 75% between Oct. 10 and Oct. 16, reflecting concerns about the company's deteriorating financial position.

On Oct. 16, Thursday, lock-up restrictions on the new shares expired at 5 p.m. ET, enabling previous convertible noteholders to sell their shares. Investors recognized the opportunity to leverage the added liquidity, sparking the short squeeze. The stock gained 24.2% last Friday before surging on Monday. Notably, during this rally, the average share changed hands nearly twice in a single day, despite the increased share count.

What Lies Ahead for Beyond Meat?

The remarkable spike in Beyond Meat stock appears disconnected from the company’s fundamentals. The recent tender offer, though strategic, is seen by many as a desperate maneuver to manage debt, as the firm would likely have been unable to repay its senior notes due in 2027. Converting the debt into stock not only lightened Beyond Meat’s financial obligations but also provided creditors with compensation, averting a possible bankruptcy scenario.

However, the fundamentals paint a grim picture. Beyond Meat’s revenue is declining, and the company remains deeply unprofitable. By the end of the second quarter, its $1.14 billion in convertible notes far outstripped its recorded assets of $691.7 million, signifying ongoing financial distress.

While the tender offer may grant the firm some short-term breathing room to seek new funding, it does little to address the company’s long-term growth prospects or profitability. As evident from prior meme stock phenomena such as GameStop, AMC, and Opendoor Technologies, sharp price swings can occur in the near term. Nonetheless, Beyond Meat’s outlook seems grim, with bankruptcy being a looming possibility. Investors are advised to exercise caution and carefully consider the risks associated with this troubled company.