Beyond Meat (NASDAQ:BYND) stock is down 5% today in early morning trading after it lost a court decision and was downgraded by JPMorgan.
All this comes just 24 hours after the company got a nice boost from Denny’s (NASDAQ:DENN), which says it’s expanding its launch of Beyond Meat’s plant-based burgers to 1,700 restaurants.
It truly has been a roller-coaster ride for Beyond Meat stock since its May IPO. The stock is up nearly 400% from the company’s IPO price, but is far below the highs that it reached in the summer.
Should investors stay on this roller-coaster ride, or is it time to take your profits from Beyond Meat stock and run? We’ll take a closer look.
Beyond Meat Is Having a Bad Day
There are two headwinds for the stock today. First, a California judge ruled Monday that Don Lee Farms, a former partner of Beyond Meat, is likely to prevail in a lawsuit that accuses Beyond Meat of breaking the companies’ manufacturing agreement. Don Lee Farms is accusing the company of fraud, negligence and breach of contract.
“Our claims have been shown to several judges and each one has ruled in our favor,” Don Lee President Donald Goodman said in a statement. “We are pleased with where we are today but it is just the beginning. We will prove our claim that Beyond Meat misappropriated our trade secrets to manufacture the Beyond Burger and other products.”
Beyond Meat didn’t immediately return a message seeking comment.
Second, JPMorgan downgraded the stock from “neutral” to “overweight” today. Furthermore, it dropped its price target from $138 to $134. Analyst Ken Goldman wrote that there is little upside to Beyond Meat stock at the moment.
“This is largely a valuation call,” Goldman said, according to Barron’s. “Our downgrade is unrelated to yesterday’s stories about a legal conflict with a former partner.”
Beyond Meat Stock at a Glance
Beyond Meat was one of the best IPOs in recent memory as the company debuted as demand for vegan food options peaked.
Beyond Meat and privately held Impossible Foods really raised their game with their new meatless options. Instead of serving up bland “beany” tasting, bean burgers, the new wave of meatless burgers mimic the texture, look and taste of real beef.
These burgers even include beet juice as “blood” and replicate the look of a beefy burger.
Beyond stock quickly rose to more than $200 a share, and Restaurant Brand International (NYSE:QSR) subsidiary Burger King launched its meatless Impossible Whopper nationwide.
Much of the company’s future lies in its strategy to partner with fast-food restaurants that are eager to give burger-lovers a healthy, plant-based alternative. And while investors celebrated Denny’s announcement on Monday that it will expand its use of Beyond’s burgers, it’s unclear if a similar test with McDonald’s (NYSE:MCD) will be as fruitful for investors.
While Burger King is branding its meatless Whopper with the Impossible Foods name, Coca-Cola (NYSE:KO) products are the only branded item sold by McDonald’s. The fast-food giant is testing meatless burgers using Beyond Meat patties in some Canadian restaurants, calling it a “P.L.T.”
“For new products, McDonald’s often develops its own product specifications and prefers to multi-source suppliers,” UBS said. “Note the P.L.T, is not ‘branded’ as a Beyond product though its product description does say it is a Beyond Meat patty.”
Make no mistake — branding is a big deal. Beyond Meat won’t get the same juice — even beet juice — from its McDonald’s partnership as Impossible Foods is gaining from Burger King’s Impossible Whopper.
For the third quarter, the company reported revenues of $87.9 million, a 170% year-over-year increase from 2017. The company was expected to issue Q4 earnings on Monday, but there was no announcement and no immediate indication of when earnings would be issued.
The Bottom Line
Beyond Meat stock is a risky play right now. Like any startup, the company’s valuations are out of whack, but Impossible Foods seems to be positioned better in the market right now. This is particularly true given its well-branded partnership with Burger King.
The company’s legal problems are also a huge unknown and its impossible — pardon the pun — to evaluate the company’s liability to future earnings.
For now, the best play for Beyond Meat investors is to hold fast … and to hope for some better news down the road.
As of this writing, Patrick Sanders did not hold a position in any of the aforementioned securities.