What Bulls and Bears are Saying as BYND’s IPO Goes “Beyond” Parabolic

BYND’s surge represents the largest one-day rally in an IPO since 2000 among companies with a market capitalization of at least $200M.

With shares of the highly-anticipated ride-sharing company Lyft (LYFT) trading lower by nearly 20% from its late March IPO price, there was little to suggest investors had “irrational exuberance” heading into yesterday’s IPO of Beyond Meat (BYND).

Beyond Meat, a provider of plant-based meat alternatives, initially priced its IPO in the $19-$21 range before raising both the offering range ($23-$25) and number of shares (by 1 million) on strong demand earlier this week. Even that elevated price point failed to satiate investors’ demand, as shares rocketed higher by more than 160% in their first day of trade yesterday, followed by a bullish gap higher in today’s US session.

BYND’s surge represents the largest one-day rally in an IPO since 2000 among companies with a market capitalization of at least $200M.

Source: Dealogic

Below, we outline both the bull and bear cases for the stock moving forward:

The Bull Case

BYND sits at the crossroads of several major secular trends, including fears about climate change, a focus on healthier eating, and the growing popularity of veganism/vegetarianism. The first company to create a tasty, affordable alternative to traditional meat sources will capture a substantial portion of the massive global meat market, which is estimated at $1.4T annually.

Tyson Foods (TSN) is currently one of the leaders in the space and sports a market capitalization of more than $22B. Even after BYND’s surge yesterday, the company’s market cap is less than a fifth of TSN’s, and some analysts suggest BYND should eventually trade at a premium, given its stellar 20%+ gross margins.

The Bear Case

The bear case for the stock comes down to valuation. At just $88M in global revenue, the company trades at an astronomical 43X its current sales. While those sales are growing rapidly (170% from 2017 to 2018), the company nonetheless saw $19M post-tax operating loss last year.

Though the global meat market is massive, as we noted above, competition is heating up. Impossible Foods recently announced a deal to bring non-meat burgers to Burger King, and even Tyson is developing its own plant-based meat products.

After yesterday’s surge, BYND looks like it may be priced to perfection. The meat of the matter is this: while the stock could certainly grow into its lofty valuation, the company’s successful IPO will ironically draw even more competition into the space, potentially planting the seeds for disappointment moving forward.

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.