The Beyond Meat IPO is a Wall Street fairytale. The pioneer in plant protein based fake meat products went public in May at $25 and the shares skyrocketed to $239 in a mere three months or a market cap of $12.5 billion on NASDAQ before correcting to $179 as I write. This means Beyond Meat is still valued at a colossal $10.6 billion for the ultimate fad/concept stock. Beyond Meat is not a ritzy software or E-commerce firm but a traditional brick and mortar food processor with factories, warehouses, raw material costs, distribution networks (trucks!) and a product without a patent moat that faces competition from the Nestlé and Tyson Foods of this world, corporate colossi in the consumer food processing business for generations.
Yet Beyond Meat now trades at 30 times revenues. Do not be impolite and ask if the company makes money – that is so twentieth century, I guess. You actually buy the shares at this nosebleed valuation for a product can easily be replicated and whose brand will face competitors a hundred times Beyond Meat’s size, balance sheet prowess and global footprint. Beyond Meat now trades at a valuation of Conagra, a real packaged food multinational that happens to generate $9 billion in revenues, trades at 13 times earnings (that taboo concept in 2019 unicorn investing: Shush!) and even offers a 3% dividend yield. Did I ride on the Beyond Meat IPO speculative rollercoaster for a quick money making fiesta? Sure. Would I recommend the Beyond Meat IPO as a must own long term investment? Absolutely not. Why?
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One, Beyond Meat plans a 3.25 million share secondary offering now that its IPO currency is so white hot. Yet 3 million shares will not raise new money for the business but bankroll insiders who want to bail out and cash in. This is a red flag for me because it means insiders believe their stock is grossly overvalued, which it is.
Two, if Beyond Meat’s 3.25 million offering finds poor souls willing to buy the shares, the company’s free float will surge. This will only make the shares easier to short for the inevitable meltdown below 60 – 80 sometime in the next six months as the global economy slips into recession and dozens of unicorn IPO’s share the fate of Uber and Lyft.
Three, the golden age of Silicon Valley unicorns (which Beyond Meat is definitely not) has already passed. Uber just laid off 400 staff and wants to exit an Indian subsidiary (Ole – or should I say Ola?). The COO, a top gun from Tesla, has resigned. Both Lyft and Uber trade at 25% below their IPO price. This bubble has popped in a world where the Chicago Volatility Index has doubled in a mere week. These companies are destined to lose money forever on the path to the inevitable Chapter 11.
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Four, meatless burgers are becoming a staple of global food companies. Brazil’s Marfrig Beef has just joint ventured with Archer Daniels Midlands to make oilseed based burgers that will compete with Beyond Meat (dead meat?) and Impossible Foods (impossible to invest!). There is no justification for a premium valuation for such plant based protein product companies as Beyond Meat.
Five, Beyond Meat has ten times the valuation of Marfrig. Marfrig generates fifty times the revenues of Beyond Meat. This puppy gives Dutch tulips a bad name. Get real, get out, get short!
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