Markets BITE CHUNK out of Beyond Meat’s RED-HOT RISE

ECHOES OF TILRAY ROLLERCOASTER IN BEYOND MEAT’S 500% SURGE

It’s easy to see why Beyond Meat Inc. investors have been caught up in the hype, according to Renaissance Capital founder Kathleen Smith.

Smith, who runs Renaissance’s IPO ETF, said much of the interest since the company went public on the Nasdaq at US$25 per share can be attributed to the stock offering investors their first opportunity to buy into meat alternatives on a prominent stock exchange. That interest has resulted in a 500 per cent gain in just two months, including three days in which the shares jumped more than 20 per cent, making it the best-performing IPO so far in 2019.

“(It’s trading) like it’s a cure for cancer,” she said on Monday after another massive upswing.

While the shares fell more than 25 per cent Tuesday after a JP Morgan downgrade — a pullback that was perhaps overdue — the euphoria surrounding the stock has given some a sense of déjà vu. Investors need look no further than Tilray Inc., the B.c.-based cannabis company that IPO’D on the NYSE last July at US$17 and within two months went on an historic 1,664 per cent run that saw its shares touch US$300.

That valuation, investors quickly found out, was unsustainable — by last week, the stock had fallen below US$35. The path Tilray has taken since its quick start should serve as a caution to those who are looking to invest in Beyond Meat, Smith said.

AT SOME POINT IN BEYOND MEAT THERE WILL BE OTHER COMPETITORS

“For the two of them, there’s got to be a word of caution,” Smith said. “At some point, in Beyond Meat, there (will be) other competitors, as with Tilray, that come into the market and then there’s less scarcity value.”

Tilray’s rally ended when that scarcity value disappeared. At first the stock was alluring, given that it offered American institutional investors their first opportunity to buy into cannabis, according to Seaport Global Holdings analyst Brett Hundley. But within months, competitors such as Canopy Growth Corp., and Aurora Cannabis Inc. announced dual-listings in the U.S. as well.

“That enabled investors to take their money elsewhere and that let a little bit of air out of the Tilray balloon,” Hundley said.

Beyond Meat, he said, currently has the same allure to investors. It’s the one option they have to enter the meat alternatives market — one, like cannabis, that shows an enormous potential for growth. In a recent report, Allied Research estimated that the meat alternatives market accounted for US$4.18 billion in 2017 and will reach US$7.55 billion by 2025.

Should multiple competitors enter the fray and list, investors who placed their bets on Beyond Meat may re-evaluate. Impossible Foods, thought to be Beyond Meat’s main competitor, is believed to now be valued at around US$2 billion after a venture capital raise in May.

Where Beyond Meat investors may have further cause for concern is in the stock’s float. Only 19.52 per cent of its shares are currently being traded. The rest are in lock-up. The low supply adds to the scarcity value and has the potential to fuel early gains. But as Tilray investors learned, there can be severe repercussions.

Tilray’s stock was also initially boosted because of a tight float — only 13 per cent was available during its surge — but it has faced downward pressure since January when its 180-day lock-up period expired. Investors were concerned that its largest shareholder, Privateer Holdings, which owns 77 per cent of outstanding shares, could flood the market with shares.

Since January, Tilray’s free float has crept up to 27 per cent, according to Bloomberg, and the stock is now worth half of what it was then. Those Privateer shares will slowly enter the market over the next two years, Tilray announced Monday, adding supply to a market where demand is edging lower.

Like Tilray, Beyond Meat has become a target for short sellers who are picking up on its tight float and betting its rally cannot be sustained. More than 50 per cent of Beyond Meat’s free float is now being shorted, according to analytics firm S3 Partners.

Hundley points out Beyond Meat believes it is on pace to become profitable in only its second earnings report, giving fundamentals-based investors a reason to believe in the stock as well. Tilray is still not profitable and it said Monday it would not be for at least a year.

The answer is for investors to avoid betting too much, too early on these names, Smith said. “Don’t bet the ranch on one IPO,” she said.