Beyond Meat Stock: Has the Company Turned Things Around, or Is It Just the Latest Meme?

Beyond Meat (NASDAQ: BYND) sells plant-based food products, which can potentially be appealing alternatives for people who don't want to eat meat. But for multiple years, its business has been struggling to both grow its sales and stay out of the red. And that has resulted in a falling share price.

Recently, however, the tide has seemingly turned, with optimism rising around the stock. Last week, Beyond Meat's stock price closed at around $2.19 -- more than 3 times the $0.65 it was at just a week earlier. Investors appear to have become more bullish about the stock. But is this rally justifiable, or has Beyond Meat simply become the latest meme stock?

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What's behind Beyond Meat's recent rally?

There was some positive news around Beyond Meat's business last week, involving expanded distribution plans with big-box retailer Walmart. The company announced that there would be an increased selection of products at more than 2,000 stores throughout the country, including a new value pack with a lower price point.

A growing partnership with Walmart can be good for the business to make its products more visible, and a lower-priced offering may entice consumers to buy them. Investors were clearly thrilled about the development as the following day Beyond Meat's stock reached a new 52-week high of $7.69.

However, by the end of the week the stock had given back much of those gains.

Is Beyond Meat officially a meme stock?

Another development that occurred last week that had a positive effect on the food stock was its addition to the Roundhill Meme Stock ETF. This is an ETF that focuses on highly volatile meme stocks that are popular with retail investors. And as of Oct. 26, Beyond Meat was its largest position, accounting for 18% of the fund's holdings, followed by less than 5% for Rigetti Computing.

Oftentimes meme stocks represent investments in the underdogs, businesses that may be unproven or face significant challenges ahead. They can potentially look like compelling investments because if these companies prove their doubters and short-sellers wrong, their stocks can generate massive returns. In return, however, investors have to take on some considerable risk.

Beyond Meat definitely looks like an underdog these days. With many alternative meat options in the market and the company having to aggressively price its products, it may be difficult to see the business get to profitability anytime soon. Over the trailing 12 months, Beyond Meat has reported net losses totaling $153.6 million. And even its gross profit of $31.8 million has been extremely thin with respect to revenue of $301.4 million.

Beyond Meat has a long way to go in proving it's a safe investment

Based on its financials and fundamentals, there isn't a compelling reason to invest in Beyond Meat today. What stood out to me about the news with Walmart is that its new offering will be a cheaper product, which isn't good news when you think about the company's low margins. Beyond Meat is already struggling as it is to turn a profit, and a lower-priced product may only shrink its margins even further. It also isn't a good sign with respect to demand.

The risk is evident in the company's unimpressive financials, with both a lack of sales growth (Beyond Meat's top line has been declining for multiple years) and profitability highlighting some big concerns about the business. Until it can fix both of those issues, this is going to remain a high-risk stock that the vast majority of investors may be better off avoiding.

David Jagielski 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.