I've been in the market more than 30 years, and there's only been a handful of times where a trade based solely on fundamentals so far removed from reality comes along.
The last time I found something like this was in 2000 when 3Com was trading for well less than just it's stake in Palm Computing. You were buying Palm itself for a discount, and getting all of 3Com for free. 3Com doubled in a month when the market figured this out and Palm went public.
Beyond has a tiny float. It's well less than 10% of the outstanding, and the average daily volume is almost 3x the entire float. That's a problem for any position. And, if sentiment is any indicator, this is a very crowded retail trade. People are buying this without any regard for fundamentals, basing their decision solely on familiarity with the product and the idea that there is almost an infinite amount of demand for meat substitute products.
Beyond Meat's sales have been on a tear, 180% Q YoY growth. The stock trades at 50+ times sales. Today I found this. (You'll have to excuse me for linking to a Seeking Alpha article, but, bear with me).
The reality here is that there is plenty of research (for a price) about how big the meat substitute market will be by 2023-2025. The most rosy estimates put it at $10B. This is roughly a CAGR of 10%.
So, there's one huge flaw with assuming that Beyond Meat is going to grow revenues at 200% YoY for 4 or 5 years straight: their total revenue would be roughly twice that of the entire meat substitute market (by those estimates).
Even if you assume a 25% CAGR in meat substitutes, starting at roughly $4B in 2018, you don't get to $20B in 2025. That's actually more than double what even the rosiest research reports suggest.
So, which one is wrong?
The market is already paying for a CAGR in revenues for Beyond Meat that is close to 100% for the next several years. And this is not a SaaS company, where the incremental costs of new sales is negligible. There are significant operational hurdles for growth in companies where every unit that goes out the door must be "produced". You have to continually add capacity and source additional inputs.
Submitted May 21, 2019 at 02:04PM by ahminus http://bit.ly/2W9KwyL
