Shares of Beyond Meat (BYND), which hit an all-time high of $186.43 on Monday, have been beyond impressive. When factoring Monday’s rise, the stock has now skyrocketed more than 600% since its initial public offering price of $25 per share, crushing the targets of even the most optimistic Wall Street analysts. Remarkably, the stock has risen 87% in two days.
Chew on that for a moment.
Credit Suisse’s Robert Moskow, who rates the stock at Neutral with Street high target of $125, was underwater as of Friday’s closing price of $138.65. The stock is some 65% above the Street’s 12-month price target of $103.85. But analysts aren’t the only ones who are drowning. Short sellers have also taken their lumps. And as BYND stock has risen, the short bets have gotten bolder. An estimated 51% of Beyond Meat’s float is held short, according to financial analytics firm S3 Partners. Those bearish bets are valued at $813 million.
Short sellers, who profit when the stock goes down, argue about the company’s valuation and Beyond Meat’s price-to-sales ratio (40), which, in some cases, has quadrupled that of industry food stocks such as Tyson Foods (TSN), Hormel (HRL) and Nestle (NSRGY). Another metric the shorts often cite is the fact that Beyond is trading at about 10 enterprise value/sales, while the above-mentioned peers trade at an average of 2-3 times sales.
There are also questions about the company’s TAM, or total addressable market, relative to Beyond’s current market cap, which surpassed $10B during Monday’s session. But while the company’s stock price has exceeded the expected revenue growth opportunity, estimates suggests the market for plant-based foods and alternative meats could reach $10 billion in the next three years. And from there, the market is expected to grow at a compound annual growth rate of 6.7% from 2017 to 2022. Some estimates see this as a $2.1 trillion market globally in five years.
With the company forecasting full-year 2019 revenue of at least $210 million, or 140% growth, the opportunity to grow in a $2.1 trillion global industry would support the optimism shown in the share price. That’s what the bulls are betting on. The short sellers, meanwhile, have lost about $230 million in mark-to-market losses as of Friday, according to Bloomberg. That total has reached $400 million since the company’s IPO, according to S3 Partners’ Ihor Dusaniwsky.
Nevertheless, when looking at Beyond’s stock behavior, there’s a chicken-and-egg scenario unfolding. As the stock rises, the short sellers (hanging on to their valuation arguments) are increasing their bets, combined with investors’ enthusiasm for the stock, this forces short sellers to cover (buy the stock) at higher prices, thus pushing the stock even higher.
That said, it is after all, the stock market. While the bulls are winning today, it won’t last forever. The stock will ebb and flow to a normal rate and volume: hence, it won’t go up by double-digits every day. Valuation will normalize and expectations will moderate. In other words, while the short sellers and analysts have gotten this one wrong, the bulls may be wise to take some profits off the table.