It's nice when a stock market recovers, isn't it?
Wednesday was one of those happy times as investors reversed the previous day's gloomy performance by trading up many key stocks on the indexes. Two companies that got left behind, however, were Beyond Meat (NASDAQ: BYND) and Lannett (NYSE: LCI). Here's why.
Beyond Meat is having an up-and-down-week for sure. The stock was rocked by a quite bearish analyst note released on Monday, and now there's news of a rival making big strides in the market.
The rival is privately held Impossible Foods, which is set for a big roll-out of its Impossible Burger in select East Coast grocery stores on Thursday. This comes a fast week after the product -- which had only been available in restaurants previously -- made its debut in 27 Gelson's supermarkets in California.
This doesn't match the retail presence of Beyond Meat, whose wares are available in popular supermarket chains such as Kroger, and Amazon.com's Whole Foods, and Target, plus restaurants such as McDonald's, which just signed on to bring the Beyond Meat burger to 28 of its Canadian locations in a pilot project. But the move shows Impossible Foods is making a determined play at taking some share.
This market is rapidly getting crowded. Nestle's Sweet Earth Brand announced on Wednesday it's launching a pair of nonmeat products, the Awesome Burger and Awesome Grounds, the latter of which mimics a package of ground beef. Both, like Beyond Meat's Beyond Burger, are made from pea protein. Nestle says the Awesomes will be available at various retailers starting this week.
Beyond Meat was a wildly popular stock following its May IPO. But it's had a head start over its peers, and now they're catching up quickly. Although the stock has recovered (and then some) following the McDonald's news on Thursday, it's been stumbling of late. It's going to take more than the Golden Arches for Beyond Meat to outpace its rivals.
Beyond Meat's slip was nothing compared to that of pharma stock Lannett, which saw its price tumble by more than 17% on Wednesday.
At issue is the company's flotation of a convertible debt issue of up to $86.25 million. This debt is comparatively expensive with its 4.5% annual interest rate, paid semiannually.
Additionally, it's a complicated issue that gets into technical financial minutiae such as capped calls, and its conversion rate is low ($15.29 per share, which isn't much higher than Tuesday's closing price). Part of the complication with the bonds is that they contain anti-share dilution measures, but it seems investors still fear that their existing stakes will be watered down with newly converted stock.
The wallop to the stock price kills the momentum of the shares, which had been on quite a run since Lannett unveiled Q4 of 2019 results last month. The company's headline financials and 2020 guidance were better than analysts expected, even though the quarter's revenue and net income were significantly lower on a year-over-year basis (due to the loss of a big supply deal).
Lannett has been on a good path since the vaporization of said deal and has made admirable strides in broadening its product portfolio. Investors are certainly right to fear dilution, but a 17% sell-off feels like an overreaction to me -- I don't think the convertibles will have that bad an effect on the stock, and on a fundamental basis, the company is performing. Lannett is worthy of consideration, then, for stock bargain hunters.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon. The Motley Fool recommends Nestle. The Motley Fool has a disclosure policy.
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