Beyond Meat (NASDAQ: BYND) stock tanked more than 12% on Tuesday after the company reported a mixed second quarter. Beyond Meat stock is a prime example of an investment where investors need to keep the stock and the company separated in their minds.
From a fundamental perspective, the second-quarter numbers and the company’s secondary stock offering are good news. Traders are already blaming the secondary offering news for this week’s sell-off. But in all likelihood, there was absolutely nothing Beyond Meat could have reported or said this week that would have triggered more buying of the stock.
Despite the sell-off, I believe the BYND earnings numbers, guidance and even the secondary offering are all good news for Beyond Meat the company. But let’s be real; Beyond Meat stock is still insanely overpriced.
Everyone who cares about BYND stock has already read the earnings report, so I won’t go into details there. In a nutshell, Beyond Meat had a larger-than-expected loss but beat revenue expectations significantly, but Beyond Meat is a pure growth stock at this point. The only number that actually matters is 287% sales growth. As far as the company is concerned, it was an impressive quarter.
Investors who are toting pitch forks over the offering should chill. Yes, insiders are dumping the stock. Yes, they are making a killing. But if the company had not issued this offering, these same insiders likely would have just dumped their shares as soon as Beyond Meat’s lockup period expires at the end of October. Instead, they found a way to get a better price. Good for them.
The better news is that the company itself issued 250,000 of the 3.25 million shares of the secondary offering. That’s 250,000 shares times a $200 or so market price, or about $50 million in cash raised. Yes, it’s dilution. But that same $50 million would have cost the company 2 million shares of dilution at the IPO price. It’s actually a genius move on behalf of management.
Beyond Meat Versus BYND Stock
That math takes me to my main point. Beyond Meat investors, be honest with yourselves for a minute. If you bought the stock during or shortly after the IPO at $25, did you think the stock would be at $100 three months later? Did you think it would be at $150? What about $240?
These prices have no connection to reality. Beyond Meat hired professional Wall Street investment banks to underwrite its IPO just three months ago. Do you think they did their due diligence and then underestimated the value of the company by nearly 90%? If that were the case, none of those underwriters would be hired ever again.
The reality of the situation is that regardless of what you think about Beyond Meat the company, Beyond Meat stock is a joke at or near $200. The stock is the latest fad on Wall Street, like 3D Systems (NYSE: DDD) or Tesla (NASDAQ: TSLA) in 2014 or Crocs (NASDAQ: CROX) in 2007.
DayTraderPro founder Guy Gentile has another appropriate analogy.
“It’s kind of like bitcoin at $20,000. Once you’ve sucked in all the retail, there’s nothing left to buy at that point,” Gentile says.
When stocks become trendy, there’s no stopping them. Mix in a relatively low float and essentially zero shares for short sellers to borrow, and you have a recipe for a market bubble.
The irony is that Beyond Meat has had an exceptional couple of months from a fundamental perspective, including deals with Dunkin Brands (NASDAQ: DNKN) and Del Taco. Unfortunately, despite the company’s fundamental success, the stock has become untouchable at this point.
Realistic Valuation for Beyond Meat Stock
As I said, Beyond Meat has had a great couple of months since its IPO. So where should the stock be trading? It’s difficult to value relatively early-stage growth stocks like Beyond Meat. But I’d tend to defer to professional underwriters.
Is Beyond Meat worth twice as much as the underwriters valued it three months ago? Quite possibly given all the recent deal announcements and the impressive second-quarter numbers. Is it worth three times as much as the underwriters valued it? Maybe?
Assuming the underwriters’ valuation of BYND stock was off by 200%, the company’s share price would be $75. That price would still put IPO investors up an impressive 200% in just three months.
“I’m trading in the short-term, but long-term I think the stock goes under $100 by December,” Gentile says.
I agree with the target, if not the time frame. Unfortunately, sometimes stocks simply become toxic due to market conditions and irrational investor sentiment. BYND stock is now toxic no matter how you feel about Beyond Meat’s fundamental long-term outlook. The best-case scenario may be that BYND stock drifts mostly sideways for several years while the company grows into its absurd market cap.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.