Beyond Meat, which became public on May 2 and may prove to be the most dramatic initial public offering (IPO) of the year, was to be a small, relatively quiet IPO, which took place in the shadow of debuts of larger ones , technical giants looked better. But a powerful mix of irrational investors and FOMO made the premiere of these shares on the NASDAQ perhaps the most unpredictable market event we've seen in a while, when the shares at one point shot up 240% after the shares at $ 45 openings
Although Beyond Meat (NASDAQ 🙂 put $ 25 on IPO, the stock opened at $ 45, jumped to $ 70 on the first day of trading and peaked at $ 85 mid-week before Friday fell to $ 62. The stock is now floating around the $ 66 mark.
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Ten days and much volatility later, the direction that the stock is following remains unclear. The upward momentum seems to have collapsed, although shares are still trading 165% above the IPO price. Is it worth buying in this correction or is there more pain for investors?
Although Beyond Meat has potential, it is the current fundamentals, as set out in the pre-IPO S-1 submission, it seems that Beyond Meat is a & # 39; feel good & # 39; stock, rather than a good investment.
Unique plant-based meat substitute?
Beyond Meat is a food manufacturer that has developed a line of vegetable meat substitutes. Vegetarian meat alternatives are not new, but Beyond Meat claims that its products have the & # 39; taste, texture and sensory properties & # 39; from real meat. It has three product offers: the Beyond Burger flagship, sausages and & # 39; beef & # 39; crumbles
The company's products are already widely distributed in the United States and Canada and are available from citizen chains such as Carl & # 39; s Jr. and TGI Friday. They are also available in a total of 11,000 restaurants and 11,000 supermarkets in the United States
Beyond Meat & # 39; s S-1 submission emphasizes that it is not aimed at vegetarians or vegans, but rather at meat eaters. Given that the global meat industry is estimated at $ 1.4 trillion, with $ 270 billion or 19% coming from US-based carnivores, Beyond Meat's mission is significant. Yet there is considerable potential: research shows that a majority of people, including meat eaters, would be willing to give this type of product a try. However, competition for an individual's ideal protein source is growing.
Two-fold competition
Competition comes from two directions. First, Beyond Meat competes with manufacturers of other vegetable meat substitutes, such as Impossible Foods, whose vegetarian citizen will soon receive an exposure boost when it becomes available in the United States at Burger King (NYSE :). Other veggie burger competitors are Boca Foods (NASDAQ 🙂 and Tofurky, plus of course the traditional meat industry, including Cargill, Hormel Foods (NYSE :), Tyson Foods (NYSE 🙂 and others.
A second competitive front comes from meat grown in the labs instead of vegetable substitutes. Startups have been competing in this arena in recent years and are trying to be the first to offer this type of product at prices comparable to traditional meat, although none have so far been successful. The Israeli Strauss Group (TA 🙂 and Tyson are trying to infringe on this front.
It is of course difficult to predict human behavior at both moral and culinary level, but it is worth noting that the entire industry is currently undergoing enormous changes.
Turnover and income
More importantly, perhaps the figures from Beyond Meat make the current value offer of the stock doubtful. In 2018, Beyond Meat generated sales of $ 88 million, compared to $ 32 million in 2017, for a growth trajectory of 175% in sales. Perhaps even more importantly, 2018 was the first year in which Beyond Meat's revenues exceeded the cost of the goods sold, meaning that the company finally began to reap the benefits of economies of scale for its production.
Even after its public debut, the company remains in the red, with a loss of $ 29 million, one million dollars less than the losses for 2017. Sales growth was offset by higher freight costs, an increase in staff numbers by 111% and higher marketing expenses, while the company keeps trying to increase its reach
Questionable appreciation
For $ 66 per share, Beyond Meat's market cap comes to $ 4 billion. This means that the company is currently valued at a little less than 50 times annual turnover. We say that again: not 50 times the profit; 50 times the turnover. That is an extremely high rating for a company that has not yet made a single dollar profit.
Take Tyson Foods, an established food producer, as a counterexample. The food conglomerate based in Arkansas has annual sales of $ 40 billion, nearly $ 2 billion in net income, and yet it is & # 39; only & # 39; Worth $ 28 billion, 0.7 times annual revenue. We are not saying that Tyson Foods has better or even equal growth prospects for Beyond Meat, but the gap between the two ratings is just ridiculous. Consider this too: Beyond Meat, which creates its pea protein product, is now worth more than all peas in America.
When it comes to business, the growth outlook surpasses the rest. Although the turnover of Beyond Meat increased by 175% last year, will the company be able to maintain that immense pace after the current flowering period thanks to the new product and the new distribution channels?
To exceed sales of $ 1 billion and justify its multi-billion dollar valuation as sales of less than $ 100 million, Beyond Meat must double its sales in the next four years. That can of course happen, but it is up to us to consider the most likely scenario. And even with the early excitement around the company's first trading days, in the long run, given the competition, the state of the industry and its appreciation, Beyond Meat's stock is simply too rich for our taste
