Investing

How to Prepare “Beyond Meat”

By John Del Vecchio  |  May 8, 2019

I love to cook. There’s nothing better than a big, juicy steak. Ribeye is my favorite. It doesn’t need much to melt in your mouth. I love it bloody.

I’m not on the Carnivore Diet, however. I eat plenty of fruits and vegetables. Avocado is my favorite food.

I’m not really a “foodie”-type of guy. But the recent initial public offering (IPO) of Beyond Meat (Nasdaq: BYND) did catch my eye.

After all, the company makes plant-based meat alternatives, including “beef” and burgers. And the forensic accountant in me almost has to butcher and carve its Securities and Exchange Commission filings.

Could Beyond Meat be a “game-changer”? Is it an undervalued investment with great potential? Does it taste good?

Burger King is offering a meatless option, and Ikea is rolling out meatless versions of its popular Swedish meatballs.

That kind of high-profile engagement helped make Beyond Meat’s stock offering the most successful IPO of the 21st century.

Of course, my inner forensic accountant is a skeptic. And, right now, BYND is just about all hype. It’s just about perfectly done for these times.

One of the great things about the internet is that it provides a platform for anyone to share ideas and beliefs that otherwise wouldn’t haven’t gotten much if any airing in another era.

One of the worst things about the internet is that it gives people a platform to share ideas and beliefs without some “preparation.”

Nowhere is this more evident than when it comes to food.

On the internet, there are cult-like followings around certain diets. Vegans will shred you for side-eyeing a piece of bacon. The carnivores think you’re a bozo for eating a ravioli or two.

They’re deeply entrenched. They can’t be swayed to reconsider their beliefs.

Beyond Meat is certainly going to tap into a big part of that passion. It’ll have a great number of fans. They’re likely to buy the stock. There’s huge embedded demand to push the price higher.

Their love doesn’t make BYND a good investment.

Let me be clear: I wouldn’t buy a share of an IPO with counterfeit money… especially right now.

We’re in an IPO bubble on top of a regular bubble. Billion-dollar IPOs are hitting the market left and right, at a time when the stock market is richly valued. Billion-dollar IPOs don’t happen deep in bear markets. They happen at market tops.

Beyond Meat might be a big winner over the long term. But it will pay to be patient. Nothing goes straight to the moon.

Amazon (Nasdaq: AMZN) fell more than 90% in the dot-com bust. Microsoft (Nasdaq: MSFT) did nothing for 16 years after the 2000 top. Apple (Nasdaq: AAPL) flopped around for years before it became the iconic company we know today.

More recently, stocks like SNAP (Nasdaq: SNAP) have been utter disasters for IPO investors. Shares of Lyft (Nasdaq: LFYT) have done nothing but sink.

Beyond Meat’s revenues have been surging. But losses are equally as large. At $90 million in revenue, does the stock deserve a $5 billion market cap? That’s almost always a bad bet.

Yet analysts are falling all over themselves telling you to eat it up. One bucket shop sees a total market for faux meat of more than $40 billion within the next 10 years.

Big market… but it doesn’t mean the company won’t hit a few bumps in the road.

Let Beyond Meat operate for a few quarters. See if management is good at playing Wall Street’s expectations game.

There’s no doubt here that if the product succeeds in the market, the stock could be a strong performer. It might even make a great acquisition target given the low growth rates afflicting many food companies.

In the meantime, sit back, relax, maybe taste a meatless burger or two. Don’t buy BYND.

That’s good for your body… and for your portfolio.

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John Del Vecchio

John Del Vecchio is the author of the bestselling book, Rule of 72: Compound Your Money and Uncover Hidden Stock Profits and What’s Behind The Numbers: A Guide To Exposing Financial Chicanery And Avoiding Huge Losses In Your Portfolio.

As the in-house stock market guru and forensic accountant for Dent Research, John stood on the shoulders of the great David Tice, James O’Shaughnessy and Dr. Howard Schilit, and built a framework of algorithms and a multi-factor grading system that has made him one of the more successful short-sellers around.

John is also the executive editor of our Hidden Profits newsletter and our trading service Small Cap All-Stars.

He graduated Summa Cum Laude from Bryant College with a B.S. in Finance and was awarded Beta Gamma Sigma honors. He earned the right to use the Chartered Financial Analyst designation in September 2001.MORE FROM AUTHOR