Why Beyond Meat Sank 12% in October

Shares of plant-based meat alternatives manufacturer Beyond Meat (NASDAQ: BYND) were sent on a roller-coaster ride in October. A convertible debt exchange that caused the outstanding share count to explode initially sent the stock tumbling. A few days later, the stock was propelled higher in a meme stock rally, fueled in part by an expanded distribution deal with Walmart. Reality soon set in, though, sending the stock tumbling anew. Beyond Meat stock ended the month down 12.4%, according to data provided by S&P Global Market Intelligence.

Image source: Beyond Meat.

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A massive amount of dilution, then an intense rally, then a steep decline

On Oct. 17, Beyond Meat disclosed that the early settlement of an offer to exchange $1.15 billion in 0% convertible senior notes for a combination of new convertible notes and a large number of common shares had led to substantial dilution for existing shareholders. The holders of the original convertible notes were expected to own approximately 81% of all outstanding shares of common stock.

This massive dilution sent shares of Beyond Meat spiraling lower. However, the stock soon soared around 1,600% from its low in meme stock style. On Oct. 21, the company announced a deal with Walmart to expand availability of products at more than 2,000 stores. While details were slim, this likely added fuel to the fire.

Like all meme stock rallies before it, Beyond Meat's rally collapsed. The stock quickly shed its gains, ending the month lower than where it started. Preliminary results announced on Oct. 24 were the nail in the coffin. The company disclosed that third-quarter revenue would be around $70 million, with a gross margin of just 10% to 11%. Beyond Meat also disclosed a material non-cash impairment charge related to long-lived assets, although it didn't provide a number.

Ultimately, the reality of Beyond Meat's tumbling sales and compressed gross margins dragged the stock back down to earth. Q3 revenue will be down about 14% from the same period last year and down 34% from 2021's Q3. In a crowded plant-based meat market, Beyond Meat is failing to stand out from the competition.

Beyond Meat also expects to report operating expenses between $41 million and $43 million. Given its revenue and gross-margin outlook, the company's operating loss for the quarter will be around $34 million. In early November, Beyond Meat announced that it would delay its quarterly earnings report due to the impairment charge, with the company needing more time to work through the details.

Can Beyond Meat rally again?

While it's possible that another frenzy could drive Beyond Meat stock higher, the massive amount of dilution caused by the convertible note deal coupled with deteriorating financial results make Beyond Meat stock an extremely risky bet. When the company reports its results on Nov. 11, one week after originally scheduled, good news is unlikely.

Timothy Green 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.