Beyond Meat Inc (NASDAQ: BYND) has been one of the hottest IPOs in recent memory, with shares surging more than 500% from a $25 IPO price in less than two months.
Despite the huge rally, short sellers have piled into Beyond Meat in recent weeks, and investor sentiment remains extremely bearish. At this point, Beyond Meat has all the ingredients for a massive short squeeze that could be coming in the near future.
Financial analytics firm S3 Partners said Tuesday Beyond Meat already has a $921 million outstanding short position, one of the largest in the entire packaged foods and meats group. As of Monday, those short sellers have taken a $570 million collective mark-to-market hit since the company's IPO in early May.
S3 analyst Ihor Dusaniwsky said short sellers flooded into Beyond Meat in May, quickly using up almost all available shares to borrow. Dusaniwsky said borrow rates on existing shorts surpassed 150% on June 11, with intraday borrow rates as high as 600% in the first two weeks of June. Borrow rates have eased slightly from peak levels, but remain extremely high at 82% for existing positions and up to 98% for new positions.
"Short sellers are not only taking on the full brunt of BYND's post-IPO rally, they are also paying dearly for the experience, paying just over $2 million per day in financing costs just to keep their short positions on," Dusaniwsky said.
Ironically, Dusaniwsky said borrow rates may continue higher if the Beyond Meat rally resumes as long sellers take profits on their positions and decrease the available supply.
At this point, fees and mounting losses are applying untenable pressure to Beyond Meat short sellers, and Dusaniwsky said a short squeeze may be "just around the corner."
JPMorgan downgraded the stock on June 11 due to its valuation. CNBC's Jim Cramer called the stock's move "irrational." On Wednesday, Guy Gentile's DayTraderPro issued a negative alert for Beyond Meat, said the stock was "extremely overvalued" and set a year-end price target of $100.
While value investors continue to pound the table on what they see as an absurd valuation for Beyond Meat, that negative sentiment may be ironically setting the stock up for its next leg higher.
Beyond Meat's short percent of float is now 46.2% compared to the 13.9% average for the U.S. Packaged Foods & Meats group. With nearly half the stock's float currently held short, the buying volume associated with a massive wave of short covering could create tremendous near-term upward pressure on the stock.
"Many short sellers are getting closer to the tipping point of closing out their positions due to expensive stock borrow rates, stock loan recalls and massive mark-to-market losses," Dusaniwsky wrote.
If the snowball starts rolling toward a mass short covering event, the short covering buying volume coupled with the long buying volume from bulls and momentum traders could create an extremely volatile near-term spike in Beyond Meat stock.
After peaking as high as $201.88 earlier this week, Beyond Meat shares traded at $166.13 at time of publication.
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