In spite of its innovative approach to alternative proteins, the debate over Beyond Meat (NASDAQ:BYND) stock remains highly emotional. It draws heated arguments from both sides with hardly anyone in the middle. Therein lies the opportunity for active traders. The reasons for liking BYND stock goes beyond dollars and cents. There is a huge attraction to it because of the benefits its products offer people and the planet.
It has been exciting to trade since its inception. Just this year it has already had several rallies bigger than 30% in either directions. Clearly emotions run high and that’s when investors tend to make mistakes.
The goal today is to make the argument that regardless of personal sentiment, there are important levels to trade against the shorter term price action.
BYND Stock Sits on Solid Footing
First let’s get the fundamentals out of the way. There is no doubt the market for alternative meats exists. The argument against animal-based protein is gaining momentum, so the need for another source grows along with it. Beyond Meat for all intents and purposes is the highest profile company on Wall Street offering those solutions. This makes it an indestructible thesis for quite a while.
I am not here to persuade meat devotees to stop eating it, but health experts have proven that animal fat clogs our arteries regardless of how lean it is. Furthermore, environmental experts also offer compelling evidence that the earth would be better off if we didn’t raise cows for food like we currently do. Methane from herding cows is a leading cause for destroying our precious ozone layer. Last but not least, there is also the issue of animal cruelty and how we handle our food while it’s still alive.
I am a moderate in-the-middle guy and I don’t take any hard positions on any of these points. I do consume meat, but I can also live without it. This translates into my Switzerland approach to trading BYND stock devoid of any bias from emotions. I have no alternative agenda (pun intended) my only goal is to successfully find good trading levels for it.
The Stock Is Resting Above Support
The company just reported earnings and after an initial pop, it gave it back up. The headline reaction was a snooze-fest, but that is good because it gives the stock time to digest the information just above an important support zone. As long as it holds $119 and $115.50 per share then the buyers remain in charge.
BYND stock reached $167 per share in June after bouncing from the Covid-19 low of $46 per share. It is normal for a stock to rest after rallying 260% in three months. In fact, the stock can fall to $108 and still be at the 50% Fibonacci retracement level of the March rally.
There still is an open gap near $103 but that alone is not a reason to short it. Besides, even if it falls into that area, it would make for an even better opportunity to buy more on the dip.
The Fundamentals Metrics Don’t Tell the Whole Story
The traditional fundamental metrics are not yet favorable, but they’re not outrageous, either. The current price-to-sales for Beyond Meat is 20x. Although this is high in absolute terms, it is reasonable for a stock that has most of its thesis far out in time. It is unavoidable to have hopium priced into it now. After all, Beyond Meat is still in the process of establishing a market for alt-meats on Wall Street where there was none.
The message from management exuded confidence. They acknowledged the difficulties that they’ve had with the wholesale side of the business. This is understandable because a lot of the outlets for their products are small businesses who are struggling if not completely closed.
Conversely, they also offered the solutions which included redirecting efforts to the retail aspect of the opportunity. This fits with a very popular direct-to-consumer trend among even mega-cap retailers. Lululemon (NASDAQ:LULU) comes to mind because they too sell a high-end product where they pretty much own the market. Therefore the weakness in the wholesale aspect of BYND’s business is not cause for alarm.
The pandemic benefited some stocks, most obviously Amazon (NASDAQ:AMZN) and other e-retailers. But there were a few other surprise beneficiaries and Beyond Meat was one of them. As shoppers hoarded supplies in preparation for the quarantine, attention turned to its products.
CNBC’s Jim Cramer continues to tout its success, especially its recent pivot from the service back-of-the-house sales to the opportunity on the supermarket shelves. I mention this because this alone provides a certain level of support by swaying the opinions of retail investors. The popularity of the Robinhood investment platform could add fuel to this fan fare fire.
Nicolas Chahine is the managing director of SellSpreads.com. Join his live chat room for free here. As of this writing, he did not hold a position in any of the aforementioned securities.
