Beyond Meat’s Stock Drops 40% In A Month And 22% In A Day. Will It Rebound?

Beyond Meat (NASDAQ: BYND), a producer of plant-based meat, saw its stock price tank by 40% in one month (October 2019). Of this, about 22% of the drop in the stock price was witnessed in a single day – 29^th October 2019. Such a sharp drop in price in a short span for a company that had a stellar IPO earlier this year, was driven by multiple factors such as analysts downgrading their price estimates for Beyond Meat, expiry of the lockup period for early stage investors, and increasing competition. However, better than expected Q3 results, increasing tie-ups with established food chains (McDonald’s, Dunkin’, etc.), and an improved full-year outlook are a few of the factors that could see the stock price rebounding in the next one year, with Trefis estimating it to reach $128 per share.

To understand how the stock price has fluctuated and the factors driving it, you can refer to the Trefis interactive dashboard – What Drove A 40% Drop In Beyond Meat’s Stock In October 2019? Where Is The Stock Headed From Here? You can alter the key assumptions to arrive at your own estimate for the company’s stock price. In addition, here is more Consumer Staples data.

A] Why Stock Price Declined?

• Beyond Meat’s stock has faced pressure recently due to rising competition from Impossible Foods, Tyson Foods, Kellogg, and Nestle. Nestle launched its Awesome Burger, and Kellogg is now offering the Incogmeato brand of plant-based foods.
• This has prompted analysts to downgrade their stock price estimates for Beyond Meat. Bernstein recently cut its target from $172 to $130, while Wells Fargo initiated coverage with a price target of $125 per share.
• However, the most important reason for the drop is the expiry of lock-up period (founders, employees, and early private investors who buy into a company before it goes public are restricted from selling for between 90 and 180 days) on October 29, 2019.
• At the end of the lockup period, 48 million shares (about 80% of Beyond Meat’s outstanding shares) would be available for trade.
• With the stock close to $150 (6x the IPO price of $25) at September-end, markets expected early investors to book profits as the stock price was being downgraded simultaneously.
• Price of $105 on 28th October (a day before expiry), which was still over 4x the offer price, led to a 22% drop in a single day to $82 on 29th October, as 48 million locked-up shares became available for trade.

B] Valuation

a) Revenue To Increase Almost 5x In The Next 2 Years

• Beyond Meat has added $71.8 million to its revenue over the last two years.
• Increasing sales from both its retail and restaurant and food service (R&F) outlet divisions, is likely to add a whopping $340 million in revenue over the next two years.

To understand what is driving such a sharp growth in each of the company’s operating segments, refer to the Trefis analysis-

Beyond Meat Revenues: How Does Beyond Meat Make Money?

b) Estimating Revenue Per Share

• Revenue per share is expected to drop from $14 in 2018 to $4 in 2019 due to the increase in shares outstanding post the IPO in May 2019.
• The metric is expected to improve to $6.40 per share in 2020, led by higher revenues.

c) Price Estimate

• As per Beyond Meat Valuation by Trefis, we have a price estimate of $128 per share for Beyond Meat’s stock.
• Trefis is valuing Beyond Meat at about 20x projected FY’20 revenue per share (RPS), higher than its current trading multiple of 14x (as of 30th October 2019)

C] Conclusion

Though the stock price tanked on 29^th October 2019, the company’s fundamentals are still strong. Beyond Meat reported better than expected Q3 2019 results on 28^th October, a day before the lockup expiry. It was the first profitable quarter for the company. Additionally, management raised its full year revenue outlook for 2019 from over $245 million to $265-$275 million. This led to an 8.4% increase in stock price on 30^th October 2019. Though the price is expected to rebound and increase in the near term, it is unlikely to replicate its stellar performance of the July-September 2019 period.

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