While the rest of the stock market rebounded by 1.2 percent on Tuesday, Beyond Meat stock tanked by $15 per share, or 8.4 percent. Beyond Meat stock is now down 30 percent from its all-time high.
What’s going on and will it continue?
Insiders are bailing on Beyond Meat, and so are investors
On a day with no real company-specific news, the reasons for the selloff are fairly obvious… with one big culprit.
Beyond Meat announced it would make a secondary stock offering at $160 per share which, at the time, was significantly below the current stock price. That price was bad enough to drive the sellers.
Yet the real problem is that 3.48 million shares were sold by current shareholders of Beyond Meat.
That sends only one message. These insiders believe that this is as good as things are going to get with Beyond Meat’s stock price. They want to get out now while the share price is stupidly high, and demonstrates skepticism about Beyond Meat’s long-term prospects.
That means only 250,000 shares were actually sold by Beyond Meat to the public, raising only about $38 million.
Rarely do secondary offerings occur this close to an IPO, and rarely do insiders sell out at this stage. This is terrible news for the long term.
In other words, Beyond Meat insiders found enough suckers to take the stock off their hands at $160 per share – when those insiders got those shares at far lower prices. They weren’t even waiting for the lockup to expire. They had to get out now.
Welcome to the late-stage bull market. The stock market is already at its third most expensive in history, and the late stage is when the speculators rush into the stock market chasing stupid stocks like Beyond Meat.
Why is Beyond Meat a stupid investment?
Because there’s nothing special about it. It’s a commodity.
A commodity product can only distinguish itself based on price, quality, or customer service. Quality is easily disposed of, since it’s just a matter of finding something that tastes good. If Beyond Meat did it, so can Joe’s Fake Meat.
If you live anywhere with vegan restaurants, then you know that they find a way to make it palatable, if not delicious.
That means companies have to compete on price. We already see the effect of that with Uber and Lyft, both of whom are subsidizing every ride. If you’ve ever purchased any kind of television in the past thirty years, you’ve seen prices plummet as competition enters each category.
As for customer service, there’s no such thing in a mass consumer market.
Heck, Tyson Foods is bringing in plant-based nuggets from Beyond Meat’s rival, Raised & Rooted, for 4,000 stores. Tyson has a massive footprint and will make it available for distribution right away.
You can bet that will destroy Beyond Meat.
Beyond Meat: a crazy valuation for a crazy investment
As it is, Beyond Meat stock has no business trading at its valuation.
Tyson Foods and Pilgrim’s Pride are publicly held chicken companies that are commodities. They each trade at less than one time annual revenues.
When the stock market gets this crazy, and speculators drive up prices based on nothing, it always ends badly.
Beyond Meat's stock exploded when the IPO started trading to $46 per share, about double its IPO price. It then hit $230 – a ten-bagger in a matter of weeks.
Beyond Meat became the hype story of the month, and that’s what drove the buyers.
Now be prepared for the sellers.