Why is Beyond Meat’s stock going bonkers, and is the company’s valuation fair at this price?
There are two reasons behind this insane move.
The stock market is presently at its third most expensive ever. When the stock market gets this frothy, IPOs and other speculative investments tend to attract a lot of hype and momentum investors.
These investors piled into Beyond Meat’s stock when the IPO started trading. The stock market saw Beyond Meat’s stock thus open at $46 per share, almost double its IPO price.
That made Beyond Meat the big story of the day, juicing investors to bid the stock higher and higher. Often, a stock bid up like that will often decline the next day. When they don’t, they tend to keep running; Beyond Meat did exactly that.
Hype and momentum will only carry stocks so far. When that is combined with a low number of shares trading, however, it’s a recipe for rocket fuel.
Beyond Meat issued about 9.6 million shares. That’s not a lot, although it is still relatively low compared to most stocks.
In fact, 9.6 million shares would be enough to sustain a fairly strong move higher in any stock market, but buyers created a short squeeze that blew the top off BYND.
Short-sellers borrow shares and then sell them into the market, hoping the price will go down. Then they buy back the shares at a lower price than they sold them, making a profit.
More than half of Beyond Meat shares offered were sold short because bears believed the stock was outrageously over-valued and expected the early gains to evaporate.
Instead, demand for the stock was so high that the short-sellers were forced to buy back their shares at higher prices than they sold them, creating even more demand.
Beyond Meat’s stock is valued at $8.15 billion after reporting only $40 million in revenue in the last quarter. Beyond Meat lost $6.6 million in the quarter and generated negative cash flow of about $2 million.
That means Beyond Meat stock trades at more than 50x revenue, far higher than even Uber or Lyft’s craziest valuation. Yet the stock continues to defy the odds.
This article was edited by Gerelyn Terzo.
Last modified: June 12, 2019 21:02 UTC