From its IPO on May 2 to the open of trading on June 10, Beyond Meat common shares went from $25 to $170. That's a tidy 580% return in a little over a month. So what drives this meteoric rise? Perhaps we can use analysis and logic to identify the cause and find the next Beyond Meat IPO. Let's see if the following can be clues to the success of BYND:
There's a time-tested way to value stocks. The higher the earnings, the higher the value of the stock. At $170 per share the company is valued at approximately $10 billion. Beyond Meat did $88 million in revenue in 2018. Gross profit on that revenue was $17.5 million. After expenses, they lost money in 2018. Source
By way of comparison, Macy's is valued at over $6 billion and made over a $1 billion profit in 2018. They've been around for awhile and even have a parade in New York that is pretty cool. So, if a $1 billion profit is worth $6 billion for Macy's it's not earnings (or lack of) that make BYND so exciting.
Once the lifestyle of a few hippies, you now probably have a friend who is a vegan. The reason you know they are is because they tell you in person and on social media whether you ask or not. So if more people are becoming vegan, more people will be eating Beyond Burgers. That's a big "if" to prove. But for arguments sake let's say that it is the current trend.The main reasons people convert to veganism are health, climate change and animal welfare. To maintain that trend of fake meat consumption we would have to have rock solid evidence that health, climate change and animal welfare are best suited by plant-derived analogs.Health: Veganism is relatively new to human history. We have been omnivores from time immemorial. As such, long-term vegans are not proving that it works. Quite the contrary, depression, leaky gut, hyperinsulinemia and nutrient malabsorption are often reported. Source
Our short experiment in veganism as a species seeing people return to an omnivore diet with marked health improvements. Source
Furthermore, the ingredients of the beyond burger are problematic at best. Industrial seed oils (canola and sunflower oil) is known for its inflammatory properties. Bamboo cellulose is wood. Methylcellulose is a laxative chemical compound made from indigestible cellulose. Enjoy! Source
Suffice it to say, health is not guaranteed by consuming Beyond Meat products. Climate Change: Here the question is weather methane from cow flatulence in a green pasture is worse for the climate than industrial methane emissions from ammonia fertilizer. What do you think? Buffalo on the open prairie or factories processing oil into fertilizer? Go with nature on this one. Source
Animal Welfare: While there is no meat in the Beyond Burger a lot of animals have to die to keep the wheat, soy and pea monocrops unnaturally tidy. Granted these are rabbits, mice, foxes, songbirds, gophers and not Bessie the Cow. But our life requires death. We'll call this a tie. Source
So I would propose that future earnings are less than sure based on the realization that omnivory trumps herbivory on two of the three tenets.Related: The Night is Dark and Full of Risk … Is Your Portfolio?
By now, you may have caught on that the price is going up because the price is going up. A buffalo stampede may or may not have a logical reason to begin. But it continues because you don't want to be the one buffalo chewing his cud when the wolves come by. Likewise, when a stock skyrockets adrenaline courses through your veins, hijacks our logic and you don't want to be the one missing out.We've seen this before and we'll see it again. And ultimately, nobody knows if this is a fluke or the future of food. The only way to fight the herd is with a philosophy of investing that wrests control of your decision making from your lizard brain
and a system of execution that minimizes your animal spirits. If you'd like to discuss investing philosophy, click here