Quarterly financial reports follow a formula one could teach a hamster: Revenue minus costs equals profit. Compare results. Quote CEO.
Bury anything else. A couple of analysts will notice, but the wire story will omit any inside baseball and lead with the figures. The compAny’s financial people and media people craft a message with this storyline in mind.
But even having said all that, the best place to hide a tree is still in a forest. So I read earnings reports pretty carefully. And every once in a while, I notice something that seems noteworthy. That was the case with Beyond Meat’s recent report, which covered the 90-day period ended in June.
In case you missed it, the company reported net revenue increased 69%, to $113.3 million. Gross margin was nearly 30%. The company, which sells plant-based meat substitutes, is still losing money, and the loss widened. Still, Beyond is a hot issue in a coveted niche. Shares have surged nearly 70% since January.
Here’s the thing: After the recent run-up in share price, Wall Street has cooled on Beyond shares. Of the 22 analysts who cover the shares, only three say it’s a buy; nine rate it a sell. The average number of analysts with “sell” ratings on a Dow stock is just 7%, according to Barron’s. Nearly half of Beyond’s analysts say the stock price is too high.
If we were to assume that these green eyeshade types are correct, then the prudent investor has three ways to make money off an imminent decline in Beyond’s shares. She can (1) short the stock, betting outright on a price drop. She could (2) buy a put option that gives her the right to sell at a certain price, to protect gains, or (3) she could write call options at any strike above the current market price. If the price goes down, the option won’t be exercised and the investor can picket the premium from writing the option. Or the investor could do all three.
Ibsen said the minority is always right. Thoreau said that if a man is more right than his neighbors, then he comprises a majority of one. Is it wise to consider a contrarian play on Beyond? Even given its soaring stock price and weak ratings from analysts, is the stock a buy?
I think so.
Here’s what else is in that earnings report:
Beyond products are scoring a repeat purchase rate of nearly 50%, a win for any packaged consumer good. Beyond and Impossible are succeeding in bringing these products to American dinner tables. People like the taste, the perceived health benefit, the green factor and, in my view, the virtue-signaling this product delivers. When people are convinced they’re part of a movement by doing something they already do and which they like doing — i.e., eating a cheeseburger — then the company that makes that product is in the catbird seat.
But the kicker was what came next: Beyond introduced something called a Cookout Classic value pack. It reduced the price of Beyond burgers from nearly TWICE that of conventional beef patties to merely a 20% premium. From the CEO: though the company’s value packs “only reached stores in the last 2 weeks of the second quarter, it accounted for 16 points of the year-over-year volume growth in our U.S. retail business.”
If Tesla cut the price of its cars to a modest premium over Hyundai, do you think it would sell more cars? I do, too. In fact, I think there’d be a line miles long. And I’d be right: Sales went bonkers. And they’re going to continue to go bonkers.
My hunch is that the analysts’ models didn’t take this pricing shift into consideration when they ran the numbers. These people aren’t sitting in stores looking at food in the case, they’re in offices reading email and looking at spreadsheets. It turns out those spreads are flawed.
I think these analysts are myopic and short sighted. I think they’re afraid to hang on to a winner. I’ve seen it before — couple of companies come to mine. Apple, say. And Amazon.
I’m not willing to bet against Beyond. This is a meaningful trend: Humanity needs more and better nutrition. We have to reallocate how food is grown — one-third of U.S. agriculture goes to feed animals — and shift resources toward the most efficient means of production. That it happens to line up with current consumer trends is a happy accident, and one that I’m all too happy to make money from.
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