Despite a positive earnings report $BYND dropped almost 20% today due to the expiry of the IPO lockup
At these valuation levels it may be time to look at getting long
Competition and future growth prospects could continue to weigh on the stock going forward
Beyond Meat Inc stock dropped further by almost 20% Tuesday morning despite a relatively positive earnings report. The company posted a 250% revenue increase, net income of $4.1M versus last year’s loss and expects 2019 revenue to come in at over $265M. The large drop could also be explained by the fact that the IPO share lockup period expired allowing early investors to exit the stock at these levels.
So, for those not currently long the stock at much higher levels, is this a good place to buy the stock?
Let’s take a look at the numbers…
At the current price of $88 the stock trades around 20 times sales. Although relatively high compared to traditional packaged food companies, this is by no means a traditional food packaging company. Many investor’s theses is predicated on the idea that BYND will continue to grow market share globally and therefore justify the higher valuation.
Competition and future growth prospects could continue to weigh on the stock
Based on the most lofty earning estimates for 2019 the company would trade for over 150 times earnings. Once again, if growth can be maintained and they can become a global market leader in plant based proteins this valuation could be justified by many investors.
And this is where it gets tricky…
These type of products are not necessarily difficult to make, however they are hard to make well. The public seems to love the style and flavor of their plant based products and their “first mover” branding has given them a significant edge over the competition. However, with increasing competition and pricing pressures BYND may be in for an uphill battle at these valuations.
So, what should you do?
It’s always important to reflect on a move this like and ask ourselves, “what can we learn from prior experiences that can inform this situation?”. Anyone experienced in investing or trading will know that finding the bottom in a stock is almost impossible. However scaling into a stock that you already want to buy can be a smart plan. The key here to is ensure you actually are comfortable buying the stock at these elevated valuation levels and are interested in developing a long-term position in the stock.
- For those already long it may make sense to wait this drop out. Adding more at these levels could further hurt the position. If you have a long-term perspective on this stock waiting a few days or even a week for BYDN to possibly base out would be wise
- If you don’t have a position yet and are tempted to get long, waiting may be the smartest move. Given the lock up expiry, BYND could continue to move down over the next few days. However, if you’ve been waiting patiently to enter the stock, and you believe in it’s future growth fundamentals, this could be your opportunity to scale into a long-term position