Stock Of The Day: Why Did Beyond Meat Collapse?
Beyond Meat, Inc. (NASDAQ:BYND) experienced significant volatility following Walmart's announcement to distribute its products. After a short-squeeze that saw shares soar over 700%, the stock has now collapsed as the squeeze ended. Short sellers, who initially profited from the price drop, are now facing losses, leading to a sell-off. The stock's recent gains have been largely erased, and further declines are anticipated as market sentiment remains negative.
Beyond Meat, Inc. (NASDAQ:BYND) is quiet on Thursday. The shares have been extremely volatile since the company announced Walmart Inc. (NYSE:WMT) will be distributing its products.
• BYND is taking a hit from negative sentiment. Check the market position here.
Beyond Meat soared more than 700% in just three days. This was the result of a short-squeeze. But now that the squeeze seems to be over, the shares went into a freefall yesterday. This is why Beyond Meat is the Stock of the Day.
Short sellers believe a stock's price will drop. So they borrow the shares from someone else and sell them. Their plan is to buy them back at a lower price, and then return the shares and keep the difference.
If a stock moves higher, the short sellers lose money. They would have to buy the shares at a higher price than they sold them for.
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Some nervous short-sellers see the stock rallying and decide to buy their shares back before their losses become too big. This causes the price to increase even more.
Other nervous sellers see this and buy as well, putting more upward pressure on the shares. As the stock moves even higher, more short sellers became buyers. It results in a bidding war that forces the price into a steep trend.
This is why Beyond Meat soared more than 700% in just a few days.
The climax of the squeeze comes when the people who loaned the shares to the shorts see how high the price rose and decide to sell. The shorts are forced to buy the shares back and return them regardless of the price.
When the buying ends, the stock can collapse. Many times, the price can fall all the way back to when the short squeeze started.
Yesterday, Beyond Meat gave back most of the recent move higher. There is a good chance that the stock will continue to fall.
Photo: Nadya Kubik via Shutterstock
