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Whether Long or Short, Tread Carefully With Beyond Meat Stock

It may be too early to short, but it's too late to go long at today's prices

In the past week, Beyond Meat (NASDAQ:BYND) has been on a tear. Shares have surged from $74.97 at the open Jan. 6 to around $124 after pre-market trading on Jan. 14. On Jan. 13 alone, Beyond Meat stock skyrocketed 19%. After months of declines, this high-flying stock is, well, flying high again.

Like Its Burger, BYND Stock is a Matter of Taste and That’s a Problem
Source: Sundry Photography / Shutterstock.com

But why is Beyond Meat stock on fire? Chalk it up to headline-worthy potential partnerships, squeezed shorts covering positions and pure speculation. BYND may trade at a ridiculously high valuation. But in the eyes of the bulls, the party’s just getting started.

I last wrote about Beyond Meat back in December. At around $75 per share, I thought shares could go lower. What do I think now that shares are heading back over $120? All bets are off. Shares could just as easily rally to $150-$200 as they could fall back to the $75 price level.

Going long today is taking a big gamble on a stock “priced for perfection.” But you can’t short it without the risk of sleepless nights and margin calls. It’s tough to predict the unpredictable, and that’s especially the case with Beyond Meat stock at the current price level.

Beyond Meat Stock Could Rally Back to $200

Beyond Meat is on the cusp of becoming a major brand. It is quickly gaining traction in a new market. Plant-based meat products are gathering enough critical mass to be ready for prime time.

Case in point: Beyond Meat’s potential partnership with McDonald’s (NYSE:MCD). The company already has a partnership with Dunkin’ Brands (NASDAQ:DNKN). But if expanded testing of Beyond Meat-produced “PLT” sandwiches in Canada is a success, Beyond products could be in McDonald’s locations across North America. With news that privately held rival Impossible Foods will not partner with the Golden Arches, the odds of a partnership are tilted in Beyond’s favor.

Bernstein analyst Alexia Howard believes a McDonald’s partnership could push Beyond Meat’s revenue to $910 million by 2021. Howard says shares could hit $130 if a partnership is solidified. However, this analysis came out when shares traded at lower levels. With the stock passing $120, a McDonald’s partnership could easily push shares well above this price target.

It doesn’t hurt that Beyond Meat stock has heavy short interest. According to ShortSqueeze.Com, 10.1 million shares, or 39.4% of the stock’s outstanding float, have been shorted. If “big news” hits the tape, we could see the stock’s recent short squeeze accelerate.

Can Beyond Meat Carve Out a Multi-Billion Dollar Business?

For the company’s last three earnings releases, shares surged 40%, fell 12% and fell 22%, respectively. Could Beyond Meat stock fall after fourth-quarter earnings? Last quarter’s post-earnings performance coincided with the end of the IPO lockup period. Things could be different this quarter. Shares could easily rip higher on even a modest revenue beat.

But is there upside “beyond” the short term? Is Beyond Meat stock on fire because it’s the only publicly traded plant-based protein company out there? The company has made the right moves to crush it in the plant-based protein space. But is it the Tesla (NASDAQ:TSLA) of fake meat, as InvestorPlace’s Luke Lango recently put it?

In my prior analysis, one key risk I pointed out was competition. Once major food producers like Tyson Foods (NYSE:TSN) move more into plant-based protein, their size and scale will hamper Beyond’s growth prospects.

Looking back, I see flaws in my argument. Beyond Meat’s positioning as a premium brand (fast-food partnerships not withstanding) makes it akin to Tesla. I agree with Lango’s comparison that like Tesla, Beyond Meat could carve out a significant niche in a large market.

Tyson, Hormel (NYSE:HRL) and others may become market leaders in plant-based protein. But that doesn’t exclude Beyond Meat from becoming a multi-billion dollar business. By 2030, plant-based meat could be a $85 billion industry. Even if Beyond captures just 10% of that market, it would be generating $8.5 billion in revenue.

Whether Long or Short, Tread Carefully

At the risk of looking foolish, I remain bearish on Beyond Meat stock. The company does have a compelling growth story. But is all this hype worth paying more than 14 times 2020’s estimated sales of $485.6 million? At the current stock price, shares have clearly gotten ahead of themselves.

But while I believe shares could head lower, I don’t discount the potential for the recent rally to continue. If the McDonald’s testing turns into a partnership deal, my bearish call will look tremendously foolhardy. But if a rumored deal with the Golden Arches turns into a literal “nothing-burger,” shares could fall back to Earth.

If you bought at $75, take some off the table now at $120. It may be too early to go full short on Beyond Meat stock. But with speculation taking the lead, it’s too late to go long at today’s prices.

As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2020/01/long-short-tread-carefully-beyond-meat-stock/.

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