Categories Analysis, Consumer

Why Beyond Meat valuation is beyond logic

When Beyond Meat (NASDAQ: BYND) went public two weeks back, it surprised the Wall Street by winning a better response than other popular firms such as Uber (NYSE: UBER) and Lyft (NASDAQ: LYFT). The stock, which was offered at $25 per share, ended the first day of trading at $65.75. Two weeks into trading, BYND continues its rally, increasing 218% from its offer price, making it the most successful IPO so far this year.  

The stock did see a downward trend last week, before going up once again. So is the stock set for a long rally, or is a valuation plunge in the making? Let’s see.

Image Courtesy: Beyond Meat / Facebook post

Competition

Much of the rally has come from investor confidence in the alternate meat industry, which is set to grow at an annual rate of 40% for the next 10 years. While this argument holds true, rising competition in the segment could hamper Beyond Meat’s lofty ambitions.

The company has already established an excellent delivery network and supply chain throughout the US and Canada, but it is facing rising competition from rival Impossible Foods, besides traditional food companies like  Tyson Foods (NYSE: TSN) and Hormel Foods (NYSE: HRL).

In fact, Tyson Foods has been experimenting with lab-processed meat, which could pose a  greater threat to Beyond once it reaches the market.

Fundamentals

The  El Segundo, California-based firm’s annual revenues increased 175% in 2018 to $88 million. However, even this topline doesn’t justify its current market cap of $5.46 billion. The valuation represents over 62 times its annual revenues, which is an outlandish figure given that the company hardly makes any money.

Separately, it also needs to be noted that 2018 was its first year when revenues were higher than the cost of goods sold.

Short interest

Despite the stock rally and the optimism in the market, there has been a drastic increase in people shorting the stock. As per the latest stats, over 40% of its shares are currently being shorted, indicating that more people are finding Beyond Meat’s valuation ludicrous and expect it to fall shortly.  

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