Beyond Meat’s earnings are in, and they were impressive. Unfortunately, for BYND bulls, the stock sold off aggressively overnight despite better-than-expected earnings and revenue. There are two clear explanations for the trouble that Beyond Meat stock is, and they both originate from the same fundamental – overvaluation.
Since closing above $230 at its peak this year, BYND has rapidly declined to trade below $100 on Monday evening. Losing more than half its value has been strongly linked to the fact that a lack of supply squeezed the price higher, as shares were hard to come by. The bear run may have begun when an additional sale brought more available shares to the market. This allowed short sellers to attack the stock, removing a key protection it had from bearish speculation.
With the bulk of the financial media attacking the hype that caused Beyond Meat to bubble, most commentators have been quick to write off BYND as a classic example of a tired growth story imploding after overextension. There may, however, be something more simplistic going on, as the chairman’s conference call reminded the market that early investors will soon be able to cash out.
Oct. 29 is the day that Beyond Meat stock is “unlocked” and 80% of the company’s shares will become available for sale. This event allows all the early investors, who have had to sit and watch more than half their investment fading over the last few months, cash out. There is a strong belief in the marketplace that these players will take their cash and run at the first opportunity that they get. It is not a stretch to conceive that this would prevent bulls from speculating in BYND, even after Beyond Meat flipped to profit in the last quarter.
Scott Hofman, former vice president at Citigroup and Union Bank and current managing director at Ratio Capital, had the following to say to CCN.com about the prospect of investing in BYND:
“Despite the better-than-expected earnings release, Beyond Meat remains overvalued in our view and is not something we are recommending to our clients.”
Hofman is also concerned about the prospect of a deluge of shares flooding the market, stating:
“While we have no interest in BYND from a fundamental standpoint, the strong likelihood of early investors exiting on the 29th [of October] makes even a short-term position far too speculative given the degree of uncertainty in the marketplace.”
Trying to steady the ship, Ethan Brown, Beyond Meat’s president and CEO, had the following to say in the company’s earnings release regarding the positive situation that the company finds itself in, stating:
“We are very pleased with our third-quarter results, which reflect continued momentum across our business and mark an important milestone as we achieved our first ever quarter of net income. We remain focused on expanding our distribution footprint, both domestically and abroad, building our brand, introducing new innovative products into the marketplace, and bolstering our infrastructure and internal capabilities to fuel our future growth.”
It is hard to disagree with the CEO’s comment. There has been a multitude of high-profile deals made by the vegan-meat company, (even Oprah is a fan), and this latest quarter shows that the hard work has broadly paid off. Who knows what the future holds for BYND, but what is certain is that the company is proving to be more successful than many believed it would be, even if Wall Street speculation is doing its best to hide that fact.