Beyond Meat: The New Tesla?

I haven’t tried a Beyond Meat (Nasdaq: BYND) burger, but I want to.

With all the hype surrounding the company, and restaurants adding it onto their menus, it just seems logical to give it a test run. What’s the worst that could happen, I waste $7 and never do it again?

My wife isn’t convinced. A plant-based burger? Why, when all-beef burgers are as tasty as they are? She calls the plant-based versions “Frankenburgers.”

There are lots of reasons to opt out of beef, of course, from ethical concerns about the treatment of farm animals and eating meat in general to the amount of resources required to raise a cow. But still… we’re in Texas, where beef is king, barbeque is sacred, and meat remains dang tasty.

I’m also interested in Beyond Meat for another reason – I desperately want to short the stock, or find another way to bet on its shares falling back to earth. The company is so far overvalued that it makes Tesla (Nasdaq: TSLA) and Uber (Nasdaq: UBER) look like value plays.

Beyond Meat went public at $25 at the beginning of May, less than 45 days ago. On the first day of trading it shot up more than 150%. By the time the company announced earnings, about a month later on June 6, the shares were up 300%.

Two days after earnings on Monday, June 10, the shares had pushed through $180, up 620% from the IPO price. Roughly speaking, that gives the shares an annualized gain of 7,400%.

But Beyond Meat reminds me of Ben Franklin’s remarks when asked what he’d wrought during the Constitutional Convention. He responded, “A Republic, if you can keep it.”

Beyond Meat is the financial markets’ model of a true blockbuster stock – if they can keep it up.

This darling company has generated incredible buzz with its PR machine, well-timed IPO that matches up with environmental concerns, the need of investors to find the next big thing for returns, and a conference call that left analysts and investors positively giddy.

So can they keep it up? Not a chance.

Sales of Beyond Meat burgers and other products surged after the IPO as potential customers (like myself) learned a bit more about the company and its offerings. But while introducing your products to new customers is the way to grow any business, it’s a long way from sustained sales that would justify the company’s $9.8 billion market valuation.

Think about that market cap in relation to the numbers the company posted during its earnings call. In what many people felt to be one of the best reports of the year, Beyond Meat noted that it lost $0.14 per share in the latest quarter, just a penny better than the -$0.15 estimate, and brought in $40.2 million in revenue, about $1.3 million, or 3.3% above expectations. The company expects first year sales to reach $210 million, and it might break even by the end of the year.

That’s great, but is it worth almost $10 billion?

At that valuation, when the company earns $210 million in revenue for a full year (which is not today), the shares will trade at 47 times revenue. That’s not 47 times earnings, it’s times revenue. To put that in perspective, Tyson Foods sells at 0.7 times revenue, and Tesla trades at 1.7 times revenue. Even that other unicorn, Uber, trades at just 6.7 times revenue.

There’s no rational reason for investors to believe that Beyond Meat is worth this valuation, but there might be good reasons as to why the stock is rocketing ever higher… momentum and short selling.

Momentum players don’t care what a company might be worth, or “should” be worth, from a valuation standpoint. The only metric that matters is the rate at which a stock price is moving higher. For those who buy IPOs and expect growth, Beyond Meat is a godsend.

Compounding matters are the short sellers.

The company only has about 11.5 million shares outstanding and, according to Bloomberg, 51% of them are sold short. A lot of short sellers are getting the life squeezed out of them as the shares rocket higher.

Even the options are out of whack. An at-the-money put expiring in November was quoted at $60, or 30% of the value of the stock. That might be logical on a Black-Scholes options pricing model, but it kind of makes your eyes bug out when you see it.

The trading in Beyond Meat screams “bubble!” in a way that makes even Tesla and Uber seem tame. But that doesn’t mean you should take a position either way. The run up will stop when the mania ends, and as tulip buyers, land speculators, and pets.com shareholders will tell you, that’s hard to judge. On the short side, establishing a position might be so expensive as to outweigh the gains.

The only thing to do at the moment is sit back and enjoy the show as we march closer to October 29, which is the end of the lock-up period when restricted shares will hit the street. Chances are many newly-minted millionaires will rush to sell their shares, and if any short-sellers are still standing, they’ll be vindicated.

While you wait, consider having a plant-based burger. Let me know what you think it, and I’ll report back when I finally try one… without my wife.