Thestock price of Beyond meat is about to spoil but you can smell the aroma of profits with Luckin
By Matein Khalid: Chief Investment Officer and Partner at Asas Capital
I shall remember the summer of 2019 as the mother of all stock market sizzlers for the rest of my life for one single reason – the Beyond Meat IPO in New York. Beyond Meat, whose symbol is BYND on NASDAQ, was priced at $25 in a $240 million IPO, with Goldman Sachs, Credit Suisse and Morgan Stanley as underwriters, opened for trading at $45 and traded as high as $200 before closing at $170 as I write. Though no investor I know in Dubai or Abu Dhabi, my twin home bases, got an allocation in the IPO, it was entirely possible to buy Beyond Meat at $46 once it broke syndicate on NASDAQ. Any lucky investor who did that, as I did not, has more than tripled their money, albeit with gut-churning volatility. This puppy is not for the faint of heart. So, what gives in BYND?
One, Beyond Meat’s valuation is beyond crazy, Salvador Dali surreal, as I write. The alternative, plant-based protein vendor that has ignited the imaginations of investors worldwide now trades at $10.8 billion or a loony-tune 52 times estimated 2019 revenues. Tyson Foods, in contrast, a global protein colossus, boasts 2019 estimated sales of $43 billion – but has a market cap of only $40 billion on the NYSE. Hello? As we say in Dubai, Shou hal maskhara?
Read more: The Beyond Meat IPO is up 260% in two weeks!
Two, Beyond Meat is trading irrationally higher on no news, though I concede its CEO hosted an impressive conference call to announce post IPO earnings and a predictably big-time optimistic outlook guidance. No Wall Street sell-side analyst who covers Beyond Meat rates the company a buy any longer. In fact, Beyond Meat traded briefly above $200 a share on Tuesday’s buying panic on NASDAQ even though the average analyst price target for the shares is $95 – $100. The conclusion is unmistakable. The Beyond Meat IPO is on the crest of a speculative bubble that is about to pop, its parabolic ascent powered by the mother and grandmother (Yalla Jaddati!) of all short squeezes.
Three, the announcement of Beyond Beef, a new ground beef replacement product, is the immediate catalysts for the short squeeze, as is a consumer run on Impossible Burger in the US. Yet the trading patterns of the Beyond Meat IPO midweek suggest a classic short covering rally.
Henry Kissinger once said you are either on a diplomatic table as a principal or on it, being carved up – that is exactly what I imagine happened to Beyond Meat shorts last Tuesday as they were carved up on NASDAQ! What will be the endgame of this stock market madness? A lot of bloodied, even bankrupted Beyond Meat short sellers and speculative buyers. Beyond Meat cannot even use its ridiculously, even comically inflated stock price as a currency for acquiring alt-meat startups-only a total moron would accept Beyond Meat stock as real money in a merger or acquisition. My advice to investors? Get out. Stay out. For now.
I am far more satisfied with my strategic position in the Luckin Coffee IPO, which has soared 50% above my recommended buy price of $14 to above $21. This firm has gone from one store in Beijing in mid-2017 to 2500 stores across China, making it Starbuck’s only credible mass-market competitor. It has attracted the ultimate smart money investors. Silicon Valley venture capital firms, Wall Street’s largest fund managers/private equity colossi, the Singapore sovereign wealth fund. Its mission is to convert a nation of 1.4 billion tea drinkers to coffee drinkers in a single generation. Its franchise extends way beyond the hip-millennial Gen Z jeunesse dorée of Shanghai and Beijing to the vast provinces of central/Western China. Its technology backbone enables it to reconfigure its stores as ATM/buy and carry storefronts, not highly priced spaces for the chatterati sipping frappuccinos on sofas a la Starbucks. It benefits from the increasingly anti-US nationalism of Xi Jinping’s China. It benefits from two viral curves – coffee consumption in status-conscious China (6 cups per annum versus 370 cups in the US) and the growth of the mobile wallets.
To top it all, Luckin Coffee will triple its stores in the next two years. This spells hypergrowth, the network effect, a winner take all world and a multi-bagger stock price potential to me. Starbucks rose from $4 market cap to $100 billion from 1999 to 2019. Will history repeat itself with Luckin? Yes, though I will gladly accept congratulations or rotten eggs in 2039.
A friend asked me over coffee at, yes, Starbucks if it was too late to invest in Luckin Coffee. Since the company went public on May 17 in New York, I doubt it, though new money should only buy at 14 – 15 now (if we revisit these levels, which I doubt).
The Singapore sovereign wealth fund GIC now holds a 13% stake in Luckin shares. A Gulf sovereign wealth fund (a state that dare not speak its name!) has also disclosed investing in the Luckin Coffee IPO. Los Angeles’s Capital Group, one of the world’s most respected fund managers, holds a 16.6% stake.
The Darsana Capital hedge fund has a wildly profitable pre-IPO stake in Luckin Coffee. This is smart money that is in the company for the long run for exactly the same strategic reason I and my Saudi friends own the stock. The Latin verb credere – to believe. We believe in Luckin Coffee’s potential to become the Starbucks of the Middle Kingdom.