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Why Shares of Beyond Meat Were Headed Higher Once Again on Friday

By Jon Quast - Apr 24, 2020 at 11:42AM

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It appears both bulls and bears are recalibrating expectations now that the company is entering China.

What happened

Shares of Beyond Meat (BYND -0.94%) continued their upward march on Friday, rising as much as 13.7%. As of 11 a.m. EST, shares were still up an impressive 8%.

There wasn't any news this morning, but the move is still explainable. When a company like Beyond Meat dispels commonly held misconceptions, it tends to attract new buyers and send short sellers running.

A hamburger made from Beyond Burger from Beyond Meat.

Image source: Beyond Meat.

So what

Short interest in Beyond Meat's stock rose during March's market crash. The stock boasts an extremely rich valuation at over 13 times forward sales. That lofty valuation was assigned due to high revenue growth of 239% in 2019 and guided 2020 revenue growth of between 64% and 71%. Of course, that presents a risk: If the company fails to meet revenue expectations, its valuation will no longer be merited and the stock will fall.

Consider that over half of Beyond Meat's 2019 sales came from restaurant and food service partners. And the COVID-19 pandemic shuttered dining rooms around the world, leading many to believe Beyond Meat would struggle in 2020. What's more, in February, CEO Ethan Brown pledged to enter the Chinese market in spite of the coronavirus, which many saw as unrealistic. This attracted short interest and kept bulls away.

On Tuesday, Beyond Meat changed the narrative completely when it announced its new partnership with Starbucks in China. And this could be the biggest deal the company has ever announced. First, it's for three menu items at over 3,300 Starbucks locations. This will move the revenue needle.

But second, the Starbucks partnership gives Beyond Meat a prominent platform to begin building brand awareness in China. It's the world's most populous nation, and any market share the company grabs will be significant.

Now what

When the market crashed in March, I doubt Wall Street expected news like this to be right around the corner. But that doesn't mean Beyond Meat will continue rising forever. The stock will likely remain volatile for the foreseeable future. That's common with high-growth stocks like Beyond Meat, and underscores the necessity for investors to clearly understand their investing thesis -- whether it's a long or short position.

That said, there are clearly still some catalysts to the upside in 2020, including new restaurant partnerships and the introduction of new product categories like poultry alternatives. These drivers aren't figured into the company's guidance, and could provide earnings surprises going forward.

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Stocks Mentioned

Beyond Meat Stock Quote
Beyond Meat
BYND
$25.18 (-0.94%) $0.24
Starbucks Corporation Stock Quote
Starbucks Corporation
SBUX
$77.68 (-0.55%) $0.43

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