It is a dangerous game to take a short position in a cult stock with momentum. For the past few years, vehement Tesla (NASDAQ:TSLA) bears got run over before the stock finally broke last month. Beyond Meat (NASDAQ:BYND) eerily has a similar feel to TSLA pre-May, so bears will need to watch position sizing, especially given heightened market volatility. That said, Beyond Meat stock is up a mind-boggling 200% since it debuted on the Nasdaq at the beginning of May. And with a post-earnings jump up to $115 per share, that gain continues to extend.
BYND is one of the IPO names this year that has shown explosive price action to the upside since debuting. A massive gain in a month is not unheard of, but for a plant-based protein company that is being flanked on all sides by competitors (not just Impossible Foods), investors need a reality check.
Impossible Leads in Big Partnerships
The big headline in plant-based foods was the Impossible Whopper doing some magic for Burger King. It was reported that locations in Burger King’s test market, St. Louis, outperformed the chain’s national foot traffic average by 18.5% in April, after the Impossible Whopper started testing.
This demonstrates a clear interest by consumers in alternative meat products in fast food chains. They drive traffic and sales.
Other big brands like Yum! Brands (NYSE:YUM) are also in an “exploration phase right now.” Kevin Hochman, head of KFC’s U.S. division, has been meeting with major suppliers to learn more about plant-based meats. Despite Burger King’s success, as YUM demonstrates, fast-food leaders are waiting on the sideline, which doesn’t play to BYND stock’s favor.
Beyond is trying to press its leadership position in the category, but as time passes other food companies like Tyson, Nestle and Kellogg are able to step up their game. That means that investors cannot assume that it will be a shoo-in for Beyond Meat to land big deals.
For one, it holds true that vegan meat alternatives tend to be more expensive than traditional meat products, meaning they won’t have an obvious appeal to fast-food chains’ value-focused customer base. Until they are convinced that the investment will pay, the clock will keep ticking as competitors come up with their own version of the Beyond Burger.
It is worth noting on the subject of KFC, that before tinkering with a burger patty, BYND had initially started with a chicken strip product. It was a dud, but as they revitalize that effort, they could have the advantage over Impossible, for example.
The Bottom Line on Beyond Meat Stock
There is no question that plant-based meats have been gaining traction. As an industry, there is a lot of investor and consumer interest. These are certainly positive tailwinds for Beyond Meat stock, but the price action has been so extreme that BYND seems due for pullback.
The first quarter had a good showing, but without a catalyst, which could take the form of a partnership, don’t expect the fireworks to continue. The Company doubled revenues and lifted the full-year revenue forecast. Prior to the announcement, the estimate was at $205 million; now that figure is at $210 million.
Without new information, I agree there can be some pain ahead for those on the short side. However, for those who understand that gravity always prevails, taking a small short position may turn out to be an excellent trade.
As of this writing, Luce Emerson did not hold a position in any of the aforementioned securities.