The IPO Trade
Beyond Meat is one of the biggest IPO success stories of 2019, that ground floor investors love to see. The IPO price of BYND was $25 a share and the trade opened to the public at $46 a share (84% increase) and now, 6 trading days later, the stock is trading at a high of $85 with a $5 billion market cap, 240% increase from its IPO price.
Considering that this stock is a recent IPO, it is prone to high volatility as the market attempts to determine where the fair value lies. Just today this stock saw a 17.5% swing from the morning high of $85.00 to this afternoon low of $72.25. I believe that BYND has a lot of room to slide. Currently trading above 50x trailing price-to-sales, this stock has rallied not just beyond meat but beyond its fair value.
Other Recent IPO Performances
On the whole, the market has responded positively to recent IPOs. Pinterest (PINS - Free Report) went public on April 18th and has seen 55% growth from its IPO pricing. Zoom Video Communications (ZM - Free Report) went public on the same day and has shown IPO investors 116% returns in less than 3 weeks.
It wasn't all roses for IPOs this year. Lyft (LYFT - Free Report) went public at the end of March and has lost over 25% of its market value from the IPO price.
Ride-hailing frontrunner, Uber, is going public tomorrow for an expected valuation between $80 and $90 billion which would make the largest IPO of 2019. This estimate is down from earlier ranges following LYFT’s disappointing performance thus far.
Beyond Meat’s success on Wall Street exemplifies a consumer shift. Millennials are now the largest consuming generation. They have a renewed focus on “healthy living” which now encompasses plant-based diets. Beyond Meat is able to satisfy consumers desire for a juicy burger without the gluten, soy, or GMOs found in ordinary animal beef. This plant-based burger has all the food critics raving, saying that it’s not just for vegetarians and vegans but for America’s typical carnivore who couldn’t say no to a delicious burger.
Beyond Meat has grown its revenue on an annualized average of 133% per year since 2016. The firm is still losing just under $30 million per year on its income statement. BYND’s cost of goods sold (COGS) currently eating up 75% of their top-line, though this is down from 139% in 2016. Getting their COGS down through economies to scale is going to be crucial for Beyond Meat to be profitable in the future.
Below is a trend chart comparing Beyond Meat’s sales and cost of sales, as you can see the margins have consistently expanded and gross margin is now sitting at 25%.
BYND just raised about $250 million in there IPO, $40 million more than management’s expectations. They plan on investing $40-$50 million in its manufacturing facilities to expand output and meet consumer demand. $50-$60 million will be used to expand their R&D as well as sales & marketing capabilities all of which are vital for any young company’s growth. The remaining funds will be used in normal day-to-day operations and potential acquisition (though none are currently in the pipeline).
BYND is something that I would stay away from until the market finds a fair value, give it a few weeks for the volatility to wane. This is a highly competitive space that has players in it that are able to scale production quickly with more initial resources. At the end of the day, BYND is a high-risk high-reward investment even at a lower valuation. Its progress so far is inspirational put keep an eye on future earnings to see if this progression can endure.
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