This year has already seen several high profile initial public offerings and the results have been mixed. Ride-sharing giants Uber (UBER) and Lyft (LYFT) have been disappointing so far with both trading below the IPO price. Uber has been holding steady, down just about 3%, but shares of Lyft currently trade lower by more than 20%.
Other 2019 IPOs are still performing well, Zoom Video (ZM) and Levi Strauss (LEVI) are still solidly positive since offering shares to the public for the first time, but Beyond Meat (BYND) has been the best performer, with its shares now trading more than 200% higher the $25/share offering price – in just three weeks.
Thursday has been a rough day for the broad markets, primarily on continued worries about US-China trade relations, but BYND is up another 5% at mid-day. The last three weeks have been a wild ride, with the shares routinely gaining (and occasionally losing) 5-10% in a single trading session, but the momentum has obviously been solidly positive.
So what’s all the excitement about?
Beyond Meat is a great story. They’ve created a plant-based meat product that’s becoming very popular. Not only does it look and taste like animal-based protein, it’s healthier than the real thing and more environmentally sustainable. With high-protein, low carbohydrates and zero trans fat, A Beyond burger is a delicious way to do something good for yourself and the planet.
It’s the ultimate feel-good story, but should you buy the stock?
Though the company was founded back in 2009, their products have seen an incredible boost in exposure lately and are now sold on the shelves of big grocery stores and are found on the menus of national chain restaurants.
With increased public awareness of healthier plant-based proteins as well as the environmental damage inflicted by traditional cattle ranching, the market for these products is expected to significantly eat into the estimated $1.4 trillion global market for animal meats.
(Editor note: Though I was barely aware of Beyond Meat just a month ago, after all the hype recently, I purchased Beyond burgers at the grocery store and they’re delicious. If you enjoy regular burgers, you’ll probably like it a lot.)
With a market cap of over $4 billion, the current valuation is sky-high. Though Beyond’s revenues have grown more than 500% between 2016 and 2018, the shares still trade at more than 50 times 2018 sales of $88M.
The potential for Beyond Meat to become a massive global player in the food market is clear. With more than 7 billion people and growing, the world is literally hungry for nutritious and sustainably produced foods.
Unfortunately, the current share value has already priced in tremendous growth over the near future. On a valuation basis, this is a stock that’s appropriate only for the absolutely most speculative portion of any rational portfolio.
Because it’s been a public company for such a short period of time, analyst coverage and financial data on Beyond Meat are scarce. The company is scheduled to report quarterly earnings for the first time on June 6th – at which point their financial prospects will become significantly clearer.
At least until then, buying Beyond Meat is a hugely uncertain bet. It’s tempting to invest in a company with a great and popular product, but solid financial analysis would suggest that it will be a long time until the company grows into that valuation, even in a best-case scenario.
It’s a great story, but that doesn’t necessarily make it a great investment.