Beyond Meat is Beyond Me

The Triad Perspective

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Beyond Meat is Beyond Me

The Major League Baseball World Series just finished last night. Congratulations to the Washington Senators. No, wait. That was last century. Washington Nationals now. Who were originally the Montreal Expos. Hey, things change.

What are the odds of the visiting team winning all games of a seven games World Series? I don't know, as it's never happened until this World Series. The home team advantage is well known in sports. Suffice to say, the odds of the visiting team winning all seven games, in any sport, is roughly equivalent to me winning the Super Lotto twice. Especially since I never play the Super Lotto. Regardless, extreme events can happen. Just look around in the Nationals hometown, Washington, D.C. But I digress.

Now, what are the odds that an Initial Public Offering--IPO in industry shorthand--could soar almost tenfold in the first couple months of public life? Apparently better odds than the previously mentioned baseball anomaly. In the crazy investing world, these things can actually happen.

Beyond Meat is one of a handful of recent IPOs to take to the skies shortly after going public. For those still enjoying plain old beef burgers, Beyond is a new way of consuming beef. It's not beef, but rather is made of yellow peas and coconut oil. As the company website states: "we build meat directly from plants." Yum.

The company's mission--doesn't everyone have one?--is to improve human health, reduce climate change, conserve our natural resources and improve animal welfare. Oh, and make a pile of money. The U.S. meat market is pegged at $270 billion, while globally Beyond figures it's worth around $1.4 trillion. That's a lotta burgers. And potentially a lot of peas.

Before you call us to buy some shares, let's engage in a little reality check. Namely, competition.

Beyond will be competing against lots of competitors. Big players include Tyson Foods, Smithfield Foods, Nestle and Kellogg. And probably many more should the market develop. Further, we're not talking about lots of high technology here. It's just mixing up some peas and adding coconut oil. Relatively low barriers to competitive entry. Risk factors stated by Beyond include a history of losses, no guarantee of ever being profitable, reliance on others to manufacture the product and distribute it, intense competition, need for additional financing, etc. In baseball terms, the chance of a strikeout is quite high.

Despite the daunting challenge, investors love a good growth story. And if nothing else, Beyond was able to manufacture one. BYND entered the public realm in May 2019 at $25 per share. By June, investors had gotten so excited that the shares reached $170 per share. And July was the crowning achievement so far, peaking at $240 per share, almost ten times the IPO price. What would be impressive investment results over a decade was accomplished in just two months.

But like Icarus, the mythical Greek figure who flew too close to the Sun and saw his wax wings melt, Beyond has recently come back down to Earth. At its peak of $240 per share, BYND was valued at over $14 billion. Yes, huge opportunity. But huge expectations as well. Beyond has current sales of under $400 million. Would you pay $14 billion for a profitless company with meager sales? And food goliaths coming after it? Of course you wouldn't. But some investors did.

Today, BYND trades around $85 per share. Probably still wildly overvalued at around $5 billion. But hope springs eternal.

Even at today's reduced valuation, the odds are poor for a long-term investor. In general, it's best to steer clear--yes, there's a pun in there--of the IPO grill, as you're more likely to get burned.

-John Heldman, CFA

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