Beyond Meat Inc (ticker: BYND) reported second-quarter earnings after the bell on Monday, walloping revenue expectations but tripling the per-share loss that analysts expected. BYND stock plunged 9% in after-hours trading as the company announced a secondary share offering.
Heading into the release, shares of the plant-based meat company were on fire. At the close of trading on Monday, Beyond Meat stock was up 789% from its May 2 IPO price, easily making it Wall Street's stock of the year (at least through the end of July).
The maker of the Beyond Burger posted a loss per share (EPS) of 24 cents, tripling the 8-cent loss per share analysts expected.
Revenue clocked in at $67.3 million, up 287% year-over-year. Wall Street expected revenue of $52.71 million in the quarter.
Rapid Growth Continues for Beyond Meat
It's quite unusual to see the robust sales growth -- revenue nearly quadrupled year-over-year, going from $17.4 million to $67.3 million in the three-month period -- in any company on Wall Street, much less a food products company.
Looking for a source of the company's explosive Q2 growth? You'd be hard-pressed to find just one. Per the earnings report, Beyond Meat's meteoric sales were driven by higher volumes "across both our retail and restaurant and food service channels, driven by expansion in the number of retail and food service points of distribution, including new strategic customers, international customers and greater demand from our existing customers," the company says in its earnings report.
Arguably even more important than Q2 revenue is the company's forecast for full-year 2019 revenue, which was also raised. Beyond Meat now expects "net revenues to exceed $240 million, an increase of greater than 170% compared to 2018, updated from its prior expectation of net revenues to exceed $210 million."
It also expects positive full-year 2019 adjusted EBITDA (earnings before interest, taxes, depreciation and amortization), compared to previous guidance for break-even adjusted EBITDA.
Beyond Meat's Valuation Problem
If Beyond Meat stock has a problem, it's certainly not profitability (or lack thereof). Wall Street is going goo-goo for BYND stock because of its revenue growth, not because of its earnings. Beyond Meat isn't turning a profit yet, but the goal is to expand that top-line base as rapidly as possible, scale up and worry about profit later.
The problem is simple: valuation.
BYND stock's valuation is so high that any numbers the company posted in Q2 could not have justified the current valuation. In the prior week before earnings, BYND had roared past a $13 billion valuation, making it more valuable than the venerable Campbell Soup Co. ( CPB), which is valued at $12 billion.
In comparison, Beyond Meat had $115 million in trailing 12-month revenue to Campbell Soup's $9.35 billion.
That's the only reason BYND stock is plunging after Q2 earnings: the stakes (not steaks, mind you) were overcooked. The "buy the rumor, sell the news" philosophy applies here -- so much rampant speculation was present in the stock's valuation that this response is the only logical one from the report.
The Beyond Burger is a phenomenal product and plant-based food that looks and tastes like meat is sure to make waves as time progresses. But it's not a software company, and shouldn't trade at more than 100 times sales, as it was in the hours leading up to its Q2 report.
This is a healthy pullback for BYND stock. And given how rapidly shares rose, don't be surprised to see them fall just as fast. Even if the quarter proved demand is robust.
A Last Bearish Indicator for BYND Stock
Aside from the plainly euphoric valuation, the vegan meat company also announced in a separate SEC filing that it plans to sell 250,000 shares of BYND stock in a secondary offering. At the same time, existing shareholders (read: company insiders) will sell an additional 3 million shares.
This is bad for two reasons: first, it dilutes existing shareholders by increasing the share count, entitling each current public shareholder to less of the company's future earnings. Second, it's notable that the company itself will only sell 1/12th the amount of stock that other private investors will sell, meaning most of these additional shares won't go toward funding BYND's future growth.
Still, with a lofty valuation, now is the time to raise additional capital, and if the company can sell 250,000 shares at $200 a pop that will mean $50 million in additional funds.
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