What’s going on with Beyond Meat stock and why is it up 1,200% this week?

A short squeeze rally fueled its meteoric rise.

It has been quite a week for Beyond Meat (NASDAQ: BYND), a penny stock which has soared roughly 1,200% this week, at its peak.

The company, which makes plant-based meat alternatives, was trading at about 67 cents per share at the close of the market last Friday. By Wednesday morning, October 22, it had skyrocketed to roughly $8.70 per share – a gain of almost 1,200%.

After that, the selloff began, and the stock dropped all the way back down to about $3.35 per share as of Wednesday afternoon, down about 8% for the day. But it was still up roughly 400% this week.

Short squeeze in effect

The wild ride for Beyond Meat stock has many of the characteristics of a meme stock rally, driven by a short squeeze.

Prior to the runup this week, Beyond Meat had dropped to an all-time low, falling to a low of 55 cents per share last week after a debt restructuring deal was announced. The exchange offer led to the issuance of 316 million new shares, which resulted in shareholder dilution. After that, Beyond Meat got several analyst downgrades and was heavily shorted by investors, betting that the stock would fall.

But things started to change this week when Beyond Meat announced that it had expanded its relationship with Walmart (NYSE:WMT) to offer its , Beyond Chicken Pieces, and Beyond Steak Korean BBQ-Style at more than 2,000 Walmart stores.

Also, this week, Beyond Meat stock was added to the Roundhill MEME Stock ETF (NYSEARCA: MEME). These two catalysts led to a rally, and ultimately a short squeeze, where investors started buying, which caused the short sellers to buy back in. This led to Beyond Meat stock skyrocketing.

“These things kind of take on a life of their own – whether it’s short covering or people jumping on board, the effect is the same,” Joseph Saluzzi, partner at Themis Trading, told MarketWatch. “Everybody is looking for the next momentum move, and this happens to be the flavor of the day. I wouldn’t be shocked if a few others start to pop.”

Proceed with caution

As with any meme stock, investors should be very cautious. While the Walmart deal is a positive catalyst, Beyond Meat is not profitable and it has struggled to generate revenue. In the second quarter, it generated just $75 million in revenue, down 20% year over year. It had a net loss of $29 million, or 38 cents per share.

It is a leader in plant-based meats, with distribution deals with several restaurant chains, including McDonald’s, Denny’s, and TGI Friday’s, along with major grocery chains.

The stock is prone to wild swings, as we are seeing this week. It was falling sharply Wednesday afternoon, so investors should let the dust settle then reassess. More could be gleaned about its long-term prospects from its Q3 earnings release on November 4.