It's safe to say the recent ipo of Beyond Meat (BYND) has been a real winner for those who bought on the ipo and have held the stock up until this point. The stock has had an astronomical ride from the $25 ipo price to nearly $150 per share on the Friday squeeze. By any comparison, this is a very successful ipo. Congratulations are in order for the bulls who have made big money! Many people do not quite understand what's going on with this move, so maybe I can shed some light on the situation. There are several reasons why the stock has moved so far "beyond" belief...
1. With disappointing ipo's like Lyft and Uber, Wall Street needed a runner.
2. There is a cult like following from the vegan millennial crowd.
3. The float of the stock is pretty small for the stock price.
4. There is a high short interest which makes a stock much more squeezable.
5. It is a "story stock" that a wide range of people can understand.
6. It is not easy to get shorts and the interest is expensive for borrows.
7. The stock has been talked up greatly on televised and social media.
8. There are a lot of celebrities invested who have been hyping the stock.
While we recognize and understand why this stock has had legs, we also recognize that the stock has going far "beyond" where it should be priced. Early shorts have been taking a beating. Even famed short seller Andrew Left of Citron Research (whom I usually agree with) was sucked in early on this fiasco knowing that this was the exact type of story stock that he generally recommends staying away from. No trader can always get it right and lets be straight...In this dull bull market with politicians, corporations, deep state, and Fed behind it, short sellers have really not had much of a voice. It is what it is though. It's just the nature of the beast in this business we call "stock trading." With all of the volume and interest in this stock, it is great for trading. Unfortunately, the options have terrible spreads of nearly $3 at times. You can still play these, but need to get entry on the mid price. If the bid is $8 and ask is $11, place a limit order for $9.50. Up at these absurd levels, it may be good to take puts a few months out, but hedge by buying and trading some short term calls at support levels.
Valuation: Obviously low float stocks in a hot area can move well "beyond" what makes sense in terms of valuation. This is important as all of these overblown runners do eventually come back to reality. We saw this with the cannabis stocks when many exploded to outrageous multi-billion dollar valuations. Stocks like Tilray (TLRY) started with an ipo price of $25, ran up to $300, and is now back into the $30 area. Anyone with sense knows these types of valuations are not reasonable. Lets be honest, there is a lot of dumb money chasing BYND up here. But in this market however, the dumb money is making money! A lot of millennials that don't usually trade have poured into this stock just like they did with cannabis. This has aided in creating massive short squeezes. With only $40 million in revenues, a $9 billion current market cap is "beyond" ridiculous. This is just plain fact and is even more unreasonable than Tilray market cap was near $300. The company also posted a $6 million loss and therefore is not profitable. Smart money will be taking profits after the recent earnings move. They will then wait for a solid correction and buy back in to hold as an investment if they believe in the long term viability of the company.
Product: There is certainly a trend among Americans (especially millenials) of staying away from meat. And I do agree that there is good reason (killing methods, hormone injection, health concerns, etc). From an ingredients perspective, the burger it not really any healthier than other options and apparently the company itself does not claim health benefits. Fat and sodium content is about as high as a regular burger for example. In this Business Insider article, they explain that these plant-based burgers are not much healthier than fast-food burgers. Futhermore, despite what some claim, there is competition in this space and more is coming from some big players. Impossible Burger is just one example. In a four ounce uncooked Beyond Burger patty you will find the following...
Bottom Line: We believe this stock is due for a reasonable correction of at least 25% and so our target is $100 in the shorter term. BYND has already run well above most analysts amplified targets. Be smart and take some money off of the table. If you are reaping gains, avoid the urge to be too greedy. Do not forget what happened to those who got greedy with cannabis stocks like Tilray. They are now just wishing they locked in gains when they were there! Look more at puts and short opportunities up at these levels. Trade the stock based on support and resistance. And always keep in mind that "bulls make money, bears make money, but pigs get slaughtered." Good luck to all players long and short!
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