What happened
Shares of Beyond Meat (BYND 0.95%) rose as much as 34.5% today following a strong first-quarter 2019 earnings report last week. Today's move isn't being driven by any specific news, as there weren't any new press releases or SEC filings disclosing new information.
While it's easy to see why some investors are excited over the absolutely massive $1.9 trillion market opportunity for meat products globally, the soaring stock price isn't being driven by excitement. Rather, it appears to be spurred in large part by the small number of shares available for trading. That's something that's easy for investors to overlook -- until it's not, of course.
As of 1:35 p.m. EDT, the stock had settled to a 20.7% gain.
Image source: Getty Images.
So what
The business expects full-year 2019 revenue to reach at least $210 million, representing year-over-year growth of at least 140%. That's impressive, and it might be possible for the company to keep triple-digit growth intact in 2020, but a market cap of $10 billion values Beyond Meat at 47 times expected sales.
That's a little ridiculous for a company selling food products. For perspective, it's 4,700% more expensive on the same metric than Tyson Foods right now, or even Whole Foods Market at the time of its acquisition by Amazon. While it's true that Beyond Meat is likely to enjoy premium gross margins compared with those companies, the party might come to an end once restaurants -- the driving force behind this year's growth -- gain more leverage from an avalanche of animal-free protein products readying for market launches in the coming years.
Unfortunately, that's not the only party likely to end for investors. Consider that there are only about 60 million shares outstanding. Only a fraction of that total isn't locked up by insiders and banks, and half of that amount is being held short (read: traders betting against the stock), according to analysis from Bloomberg. Those short bets have gone horribly wrong, and the fact that the average daily trading volume is hovering near a whopping 10 million shares suggests that the stock's recent volatility is being driven by traders, not investors.
Now what
Mr. Market isn't always so great at understanding nuance, but consider that all of the following things are true:
- Beyond Meat has a great product.
- Beyond Meat is one of the fastest-growing businesses on the stock market.
- Beyond Meat is grossly overvalued.
Investors with a long-term mindset might want to add animal-free protein investments to their portfolio, but they should certainly wait for traders to let go of their stranglehold on the stock.
