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Wall Street Eats Up The Beyond Meat IPO

Tom Taulli

The IPO with the highest first-day performance this year? Well, it’s not Zoom Video Communications (NASDAQ:ZM) or Pinterest (NYSE:PINS). Rather, it is a food company: Beyond Meat (NASDAQ:BYND).

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On Thursday, the company launched its offering and the shares spiked by a sizzling 163% to $65.75. Keep in mind that the market value of BYND stock is now at roughly $3.9 billion. Not bad for a company that has been around for only about 10 years and has $87.9 million in revenues (for 2018).

So why the exuberance for the Beyond Meat IPO? Well, this company is similar to a tech operator — that is, it is focused on disrupting a massive industry by leveraging cutting-edge innovations. Consider that spending on animal-based meats comes to about $1.4 trillion per year on a global basis, according to Fitch Solutions Macro Research.

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Backgrounder on the Beyond Meat IPO

The founder of Beyond Meats, Ethan Brown, grew up on a family farm in Western Maryland. From an early age, he wondered: Do we need animals to produce meat? Might there be alternatives?

Of course, he would go on to answer these questions, becoming an expert on the meat market. In his shareholder letter in the Beyond Meat IPO prospectus, he notes: “If we insist meat be defined by origin—namely poultry, pigs and cows—we face limited choices. But if we define meat by composition and structure—amino acids, lipids, trace minerals, vitamins, and water woven together in the familiar assembly of muscle, or meat—we can innovate toward a solution.”

He pointed out that many of those core elements that makes meat are available in plants, so what his company does is bypass the whole animal-eating-the-plant part, smoothing out the production flow.

To pull this off this vision, Brown has built the Manhattan Beach Project Innovation Center, which is a 30,000-square-foot facility, and has hired a strong team of scientists, researchers and engineers. The goal is to perfect the best plant-based meat.

Now, the strategy is not to focus on the vegan/vegetarian market, which accounts for less than 5% of the U.S. population. Instead, Beyond Meat sells its product in the meat case section at grocery stores — in about 15,000 locations.

The company has also been aggressive with the restaurant channel, with about 12,000 locations. Some of the customers include Carl’s Jr, A&W Canada, Del Taco and TGI Fridays.

Bottom Line On BYND Stock

The Beyond Meat IPO certainly has notable risk factors. After all, there are major hurdles in getting approval for its food, as well as manufacturing at scale. There is also emerging competition, such as from Nestle (OTCMKTS:NSRGY) and Tyson Foods (NYSE:TSN).

Oh, and yes, the valuation is stretched, with the shares trading at over 40 times revenue. Consider that a typical food company fetches about a 2X multiple.

Yet when it comes to the Beyond Meat IPO, the key is the growth — which is definitely robust. Last year the revenues spiked by 170%. The company is also quickly building a unique brand and assembling an impressive set of IP (Intellectual Property). So while there will remain volatility in BYND stock, there is lots more runway for growth.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

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