Beyond Meat (NYSE: BYND) has cooled off a bit after its incredible post-IPO run. BYND stock has been trading in a broad range of between $140 and $240 for more than two months now.
Beyond Meat stock bulls are quick to point to the seemingly constant string of news headlines about new deals and partnerships. Investors will tell you that plant-based meat is spreading like wildfire. The growth trajectory is astounding, they say.
Even after a major pullback from $240, BYND stock is still up more than 400% from its IPO price. It has quintupled its market cap in about four months.
I’m not a fan of buying the stock, and it has nothing to do with the outlook for what I like to call meatless meat. It has to do with what I see is Beyond Meat’s biggest problem: variant perspective.
Almost all investors watch quarterly earnings reports closely. Why? Good quarterly earnings numbers and revenue growth can send a share price soaring. Bad numbers can send it plummeting. But what are “bad” earnings? What is “good” revenue growth? Most companies would be pleased with 15% revenue growth. Netflix (NASDAQ: NFLX) investors would be disgusted.
It’s not actually the numbers that move the stock. It’s how those numbers vary from consensus expectations. Consensus expectations are typically seen as the average projections of all the Wall Street analysts covering the stock. It doesn’t matter if earnings were up 50% from a year ago. If analysts were expecting 60%, the stock will likely drop.
What Is Variant Perspective?
Former Kase Capital hedge fund manager Whitney Tilson recently said that the easiest thing in the world to do is figure out what a company is likely to do next. Simply log onto CNN or Bloomberg and look at consensus analyst estimates, ratings and price targets.
The problem is that expecting what everyone else is expecting and being right likely won’t earn you much money in the market.
“Your challenge is very simple – yet also very difficult: find stocks in which the performance of the business turns out to be far different than the consensus view today (either outperformance if you’re long or underperformance if you’re short),” Tilson said.
This key to investing is called “variant perspective.” It’s an idea about a stock that is different than what the average person thinks. To outperform the market over time, you need to do more than just predict the future. You need to see the future differently than the average person by having a variant perspective.
TSLA Versus BYND Stock
I like to use Tesla (NASDAQ: TSLA) as an excellent example of the importance of variant perspective. While Tesla has had some growing pains along the way, it has generated some incredible growth numbers. Revenue was up 26% in 2015, 73% in 2016, 67% in 2017 and 82% in 2018. Those numbers represent the type of growth investors salivate over. Yet over the past five years, TSLA stock is down more than 21% overall.
Back in 2014, Tesla investors saw the EV boom coming. Then it arrived. The problem is that everyone else saw it coming too. The Tesla investors from 2014 had no variant perspective on the stock.
Variant Perspective and BYND Stock
Beyond Meat’s consensus expectations have changed a lot since its IPO. Just look at its share price. The danger lies in how in the world the company can exceed the extremely high bar the market has set over the next several years.
BYND stock investors talking about all the deals announced in the past couple of months should save their breath. Everyone knows about those deals already. In fact, the 400% gain in the share price suggests everyone assumes the new deals will keep rolling in. Yes, the meatless meat business is booming. Yes, it will continue to boom. That is now the consensus expectation.
Beyond Meat reported 287% revenue growth in the second quarter. Analysts are probably looking for more of the same next quarter. I know I am, and I’m a Beyond Meat skeptic.
If I could go back in time and tell 2014 Tesla investors one thing it would be this–everybody knows already. You’re not the only market guru who figured out EVs are coming. The big BYND stock price rally earlier this year reminds me a lot of the TSLA stock rally in 2013. That rally represented everybody figuring it out.
The same thing just happened with Beyond Meat. If investors expect better results over the next five years than Tesla investors have gotten in the last five, Beyond has a very high bar of expectations to clear. I wouldn’t bet on it happening.
As of this writing, Wayne Duggan did not hold a position in any of the aforementioned securities.