Beyond Meat (NASDAQ:BYND) has an innovative offering, but for some reason it draws a lot of controversy. Opinions are very bifurcated from the pros and the antis on the subject of fake meat. This makes BYND stock exciting to trade.
Momentum stocks like this rarely give easy entry or exit points. Investors who are not planning on holding the stock for decades need to wear the stock chart technician hat every once in a while to get better results.
But first it is important to set the macroeconomic stage because a lot is happening. This morning we learned that 21 million people are out of work in the United States, the worst level since the Great Depression. The unemployment rate is 14.7%. Moreover, this is an understated number because the government survey that produces the report excludes all those unable to look for work due to quarantine out of the count altogether. It is very likely that the real unemployment number is much higher.
Very few businesses can thrive in such an environment (Amazon (NASDAQ:AMZN) and its cohorts being the exception group). So far BYND stock has been resilient and near its 2020 highs. But that doesn’t mean that it’s in the clear.
There Is Value in BYND Stock Even If It Is Expensive
It’s hard to argue for value when a company is trying to establish an almost new industry. Much like what Tesla (NASDAQ:TSLA) did for the electric car market, Beyond Meat is trying to do for alternative meats. It is a big task to make something new mainstream. Not surprisingly, this effort requires money. A lot of it.
Consequently, this is not a cheap stock because the company loses money and its stock price is 18 times its total sales. However, management is making all the right moves with its alliances. Most recently, there were headlines about tie-ups with Starbucks (NASDAQ:SBUX), especially in China. Working with winners is likely to make a winner out of you. Therein lies the easy bullish long-term thesis on Beyond Meat stock.
But success with the stock comes down to a matter of timing because finding a proper thesis is easy. The trickiest part is to avoid obvious timing mistakes. The most common one that I see is when people chase stocks out of fear of missing out, or FOMO. Just because a stock is in the news and it appears to be unstoppable is not a reason to chase it. Yet, the human urge is to do just that.
Momentum stocks like BYND are notorious for this and they run too far, too fast. Going into $130 per share is not an obvious good place to start a new position in it.
The Chart Has a Lot of Clues
Make no mistake about my statement here, I am not against the concept but I do want better entry points. First of all, Beyond Meat rallied 166% off of the Covid-19 crash low. Then after a brief dip, it rallied again by 44% in mere days off the April $90 bottom. There is a good chance that in the next few weeks fans of the stock will have the opportunity to buy it cheaper. Again, this is not the same as me recommending shorting it here.
Almost all chart pundits believe that open gaps need to fill. In this case, there is one of those left open that would take Beyond Meat all the way back down to $100 per share. Even if this happens, it would be part of normal price action and the stock would still remain in the hands of the buyers.
Every burst higher needs time to breathe so that the bulls can check for footing below them. Otherwise they would build on top of froth and it becomes a house of cards, and the smallest knock would send it crashing down violently.
A Healthy Alternative Solution to Buying Stock
If I am dying to go long Beyond Meat today regardless of potential resistance, I would prefer to use the options to do it. There I can limit if not eliminate my out-of-pocket expense to be long and leave room for error.
Instead of risking $122 to buy the shares with no room to breathe, I can instead sell the $80 October put and collect $6.50 per contract. This is a bullish trade that requires no rally to yield maximum profits. As long as price is above $80 then I am a complete winner by October. Otherwise, I own the shares at $80 and I break even at $74. At that point, someone who bought the stock at the same time I sold my puts would already be down 40% on their investment.
Another way I can use the options is by buying calls or call spreads for next year. The cost for those is a fraction of what it would take to buy the shares outright. The risk is that “time” works against me, whereas if I own shares I can wait forever.
Very bullish investors could even decide to sell the puts to collect money and use the proceeds to buy calls. This makes them really long BYND stock with almost no out-of-pocket risk provided if they are OK owning the shares 35% lower.
Regardless of method, investing requires logic. The world has never seen a crisis like this virus situation, so caution is definitely warranted. I fear that the authorities may over-regulate and limit capacity everywhere. That would make the new normal very unprofitable for most companies, including this one.