After cutting his teeth at Tiger Management, Chase Coleman become one of the “Tiger Cubs,” founding his own hedge fund in 2000, Tiger Global Management, with $25 million in seed money from his old boss. Since then, Coleman’s fund has grown to hold over $36 billion in assets under management. An important part of his successful strategy was a series of smart investments focused on long-term potential – his fund was an early investor in Facebook.
In his most recent 13F filing, for the quarter ended September 30, Coleman’s fund revealed three new holdings which are sure to raise some eyebrows. Beyond Meat, Wayfair and New Relic have all generated plenty of buzz, along with real returns, but they each are facing serious headwinds, too. Not quite perfect storms of market chaos, but definitely some dark clouds of uncertainty on each of these companies.
So, is Coleman right or wrong? We’ve opened up the database at TipRanks.com to find the latest takes from Wall Street’s analysts on all three of these stocks.
Beyond Meat (BYND)
A cleaner approach to our food and environment simply makes sense, and it’s hard to doubt the harshness of the industrialized animal husbandry. Beyond Meat was formed to correct this, and to provide a nutritious and sustainable food that also meets consumers’ desire for meat and meat products. Founded in 2009, the company has grown to a 5 billion dollar business, with its products on the shelves of Kroger, Meijer, and Target stores, among others, and in restaurants from TGI Fridays to Carl’s Jr. and A&W chains, to Del Taco.
Coleman expressed his trust in Beyond Meat when his fund bought 175,000 shares of the company. BYND, which went public this past May at $25, peaked at $234 at the end of July. By the end of Q3, the period covered by the 13F filing, the shares were worth $148. BYND is trading at $80 now, making Tiger Global Management’s holding worth over $14 million.
While a major hedge fund taking a large stake is a bullish sign, BYND has been showing bearish indicators recently. Wall Street’s analysts are clearly not convinced that Beyond Meat is going beyond even.
Steven Strycula from UBS notes that BYND is a leader in its niche, pointing out that it has potential to disrupt the $1 trillion dollar-plus animal meat industry, but adds, “While we outline a robust revenue opportunity, we’re more cautious on Beyond Meat’s margin outlook as competition is intensifying, particularly from larger protein processors and packaged food peers who are likely to undercut Beyond Meat price points using excess capacity and a lower gross margin rate profile.” Strycula rates BYND a Hold along with an $85 price target, suggesting a modest upside of 5% for the stock. (To watch Strycula's track record, click here)
Writing from William Blair, 4-star analyst Jon Andersen sees both potential and pitfall to BYND, with the pitfalls larger in the short term. He writes, “Our thesis is Beyond Meat represents a unique growth opportunity. This is due to its vast addressable market; strong value proposition; and rapidly developing brand and scale… valuation could limit stock price appreciation in the near term [on] our one-year horizon…”
Overall, Beyond Meat has 13 recent analyst ratings, including 3 "buys," 8 "holds," and 2 "sells," adding up to a consensus view of Hold on the stock. Share are selling for $80, and the $113 average price target suggests a 40% upside, showing that, despite the headwinds, Wall Street still believes there is potential in this company and its products. (See Beyond Meat stock analysis on TipRanks)
Wayfair leads the e-commerce market in home goods and furniture. It has no physical stores, but operates a network of offices and warehouses in the US and Canada, the UK and Ireland, and Germany. In its Q3 report, Wayfair reported an impressive year-over-year gain of 36% in direct retail revenue, to $2.3 billion for the quarter. Gross profits were up 23.4%, to $539.9 million, and active customers increased 38% to 19.1 million. In cash, cash equivalents, and investments, Wayfair listed $1.3 billion.
A 36% gain in net revenues is a hopeful sign, especially coming after the 40% gains in Q2, and underlies Coleman’s acquisition of 510,000 shares of W in the third quarter. His fund now holds a $42 million stake in Wayfair.
That was the good news. The bad news is, the company’s GAAP net loss was $272 million. Total operating expenses increased 48% from $538 million to $799 million. That expenses are rising so much faster than revues and gross profits is an ominous sign for the future. Wayfair’s net loss, which has been increasing since Q1 2018, is accelerating even as the company increases sales. Increased expenses are only one obstacle that Wayfair is facing; while the US-China trade issues get the headlines, the Trump Administration has also used tariffs, with less fanfare, in trade negotiations with the EU. As an international e-commerce leader, Wayfair is peculiarly sensitive to tariffs and duties.
4-star Barclays analyst Adrienne Tennant is less than impressed with W stock. She writes, “We see W at a crossroads… to fuel top-line growth, it must continue to invest in acquiring customers as well as expanding into new categories and geographies… Simply curtailing spending to be in line with sales growth only results in the same EBITDA loss margin as the prior year... We think the mix of necessary spending and top-line volatility next year makes W uninvestable.”
Tennant places a Sell on W, with a decidedly bearish $76 price target – indicating a downside potential of 9%. (To watch Tennant's track record, click here)
Wall Street is not as bearish on W as Tennant, but is not convinced on this stock, either. W holds a Moderate Buy from the analyst consensus, based on 12 "buy" ratings – but also 8 "holds" and 2 "sells." Shares sell for $83, and the $106 average price target suggests an upside of 27%. (See Wayfair stock analysis on TipRanks)
New Relic (NEWR)
Public since December 2014, New Relic is tech company based in Silicon Valley. It offers cloud-based software analytics, allowing customers to track app performance online using the popular SaaS business model. For the fiscal year ending in March 2019, New Relic reported over $479 million in gross revenues.
Fiscal 2020, however, started with some serious disappointment. While Q1 revenues were up 30% and met expectations at $140 million, the drilldowns were not so good. NEWR’s free cash flow of $19 million missed the estimate by $5 million; billings, at $125 million, were below the consensus of $131 million; and the company’s earnings beat reflected lower expenses rather than increased sales. NEWR missed its target on new customers for the quarter. Shares dropped by one third after the Q1 report.
That drop was seen by Coleman and Tiger Global Management as a buying opportunity, because in Q2 the hedge purchased 2.92 million shares of NEWR, an acquisition worth over $196 million now. The NEWR purchase is the only one of the three in this list that has gained value since Coleman’s fund picked it up.
The company’s recent Q2 report sheds some light on the stock’s relative strengths. NEWR showed an EPS of 24 cents, soundly beating the 15-cent expectation and nearly double the year-ago figure. Revenue was up to $145.8 million, a 4% sequential gain. Still, this stock is down 16% year-to-date. The company is introducing a new platform for its software products, and management has not yet convinced investors that the transition is smooth.
Raimo Lenschow, 5-star analyst from Barclays and rated #20 overall in TipRanks’ database, takes a cautionary stance on NEWR. He writes, “We believe New Relic shares will likely come under pressure in the near term given… we believe Q2 didn’t provide evidence of moderating competitive headwinds, and it is still the very early stages of new platform adoption. Hence, we continue to expect a long recovery ahead and see limited upside… in the near to mid-term.” Lenschow’s $65 price target is bearish, and implies a downside potential of 3% to the stock.
For the most part, the Street’s analysts are still somewhat bullish on NEWR. The stock’s Moderate Buy consensus rating is built on 10 "buys," a strong base that is moderated by 3 "holds" and 1 "sell." The $76 average price target suggests a potential upside of 13% from the $67 trading price. (See New Relic stock analysis on TipRanks)