Wall Street has discovered the secret of alchemy yet again, and this time the name is Beyond Meat.
The “fake meat” company, whose annual sales were less than $100 million in 2018, has just skyrocketed to a $10 billion market valuation. That’s 50% more than the valuation of burger chain Wendy’s WEN, -0.36% and more than five times that of Shake Shack SHAK, +1.13% the last burger company that was somehow going to make everybody rich.
You can tell Beyond Meat BYND, -25.02% is a bubble stock because the average share in the company changes hands almost every single day. No, I’m not kidding. There are 11 million shares in circulation following last month’s IPO. Average daily volume? Just over 10 million. On Monday it was 25 million.
If that isn’t a sign of a bubble, what is?
Read: Beyond Meat has hit the ‘short-squeeze trifecta’ as borrow fees keep soaring
If someone wants to tell me what a great long-term investment this company is, they’ll have to explain first why the typical stockholder can’t hold on to the stock longer than 24 hours. “Long term,” my eye.
Beyond Meat, a company that makes “fake meat” veggie burgers, is just the latest, hottest ticket on the Street. It’s a stock for trading.
The price, after Monday’s surge, has risen nearly 600% from the IPO — from $25 to $168. And the action in the options market is nuts. Some options traders just quadrupled their money in a few days.
You can’t fight the tape — meaning stock market momentum — and there is too little of this stock around for bears to bet against it easily. So no wonder the price has been going higher.
But if we are to take the current stock price seriously, Wall Street is making absolutely amazing predictions about this company. Apparently it will be able to fight off competition from rivals (including Impossible Burger) indefinitely.
Apparently you and I can’t already walk into our local supermarkets and buy lots of different fake hamburgers and fake sausage products, many of them very good.
Apparently “fake meat” is a trend that will not — repeat: not — turn out to be yet another consumer fashion.
Apparently there are no giant companies in the hamburger business that can come up with better, cheaper products of their own and put these guys out of business. Massive hamburger companies with great, direct access to hundreds of millions of consumers? Nah, can’t think of any.
Apparently it really is a major corporate achievement that after many years of development, these guys have created a patty that tastes a bit like a regular meat patty … especially if you smother it in cheese, onions, pickles, lettuce, barbecue sauce and wrap a bun around it.
Apparently America doesn’t currently have 150,000 fully trained professional chefs able to develop their own vegetarian patties.
Apparently there isn’t a global glut in the kind of agricultural products you use to make these things.
I’ve been a vegetarian for years. If I never again hear another meat eater explain vegetarianism to me, it will be too soon. (Is #meatsplaining a thing yet?)
What the future holds
Oh, and what are we to make of this company’s $10 billion valuation?
Ignore Street skeptics who argue the price is too high in relation to current sales or earnings. This is a high-risk growth stock. You’re buying this for the future.
But the current valuation makes no sense whatsoever unless Beyond Meat can produce staggering growth rates for many years.
Let’s assume you’re at least hoping to double your money on Beyond Meat in five years (a modest 15% annual return, which isn’t much for a gamble). So you’re betting it will be valued at $20 billion by 2024.
That sort of valuation would need net income of at least $500 million a year, even by Wall Street’s generous treatment of “growth company” stocks. Based on Beyond Meat’s financials, it’s going to need at least $2.5 billion in annual sales by then to merit a $20 billion price tag.
We’re talking average sales growth of 75% a year for five years.
Apple’s AAPL, +1.16% sales growth in the five years after it launched the first iPod? Oh … 28% a year.
Yes, good luck with this.
Brett Arends is a MarketWatch columnist.