Beyond Meat Should be Beyond Your Interest
Dear Rich Lifer,
I’ve had several stock market whipping boys over the last year – names that embody everything I think is wrong with the way people are investing their money right now.
Tesla is one of them, and I gave you an update on my thoughts there just a week ago.
Today, I want to talk about another example of stock market insanity – Beyond Meat (BYND).
When I spoke at the Paradigm Shift Summit back in November, I used this company as the condensed version of what can happen when people pile into a red-hot theme rather than something supported by reasonable fundamentals. And I summarized my talk right here in the Roadmap shortly thereafter.
Just to refresh your memory, here’s the important section …
“After an oversubscribed pre-IPO, the offering price of the shares ended up getting raised to $25. Then, when they finally hit the market in May, the first trade took place at $46. At the end of trading that day, the shares closed all the way up at $65.75. And by the time [Brian Rose and I started telling readers the shares were overvalued], they had soared past $160.
“For a few weeks, we looked pretty dumb as Beyond Meat kept climbing higher … all the way up to the $230 a share level. Then, things started unravelling. All told, it’s about half of what it was when we issued our warning back in June and off about 65% from its all-time high.
“Anyone who got out in time banked an awful lot of profits before it was too late. And anyone who bought put options or shorted the stock made an absolute killing.”
There’s just one problem. Investors didn’t learn a darn thing from that episode!
History Repeats Itself
Here’s a graph of BYND from January 1st up to today…
As you can see, the stock is up about 68% since January 1st … jumping from the $70 range to as high as $132 back on January 22nd.
Is this justified?
The only real reason, other than beginning-of-the-year positioning, is a POSSIBLE deal with Starbucks… some expansion with McDonald’s, Dunkin’ Donuts, and Denny’s.
Now I know I sound like a washed-up, old value guy so I’ll apologize in advance.
But contrary to what a lot of people say, when you buy a stock you are NOT buying a “paper asset.” You are buying a stake in a real business that happens to be represented by a piece of paper. This is no different than the deed to a house or a title to a car.
If you are a very short-term trader, perhaps this argument is immaterial. You just want something that goes up quickly so you can take some money and run.
Based on its massive swings, there is no doubt Beyond Meat is a very tradeable stock.
However, a lot of people buying Beyond Meat are not traders.
What Happens When You Believe in Stocks
Just yesterday, in fact, a friend of mine told me he had bought the shares because he believed the fake meat trend was just getting started. This was largely after he watched the Netflix movie “The Game Changers,” which makes a strong argument for going vegan.
Well, here’s a little dose of reality.
Beyond Meat is still losing money. It MIGHT turn a profit this year.
Its sales are growing quickly, but it is already trading at 15 times forecasted revenues this year.
Meanwhile, competition in the fake meat space continues to increase – rapidly.
As Barron’s recently pointed out: Foodservice company Sysco (SYY) recently announced it will begin offering a plant-based burger to its many customers and that company can currently be purchased at 21 times estimated EARNINGS for 2020.
Just to reiterate: You can buy Beyond Meat at 15 times sales or Sysco at 21 times profits. One is a speculation on a single trend. The other is an investment in a company with a much longer history, a massive list of customers, and much more diversified business.
For me, there is almost no way to justify the January runup in Beyond Meat’s stock price.
The Bottom Line
I see much better opportunities out there right now… not just in the consumer staples space but all over the stock market.
But that’s from someone who looks through an investment lens not a gambling one.
It is entirely possible the stock will keep zooming higher… whether it makes any sense or not.
To a richer life,