Beyond Meat - Stocks Fall Ahead Of Fed Meeting
Beyond Meat led the stock market to fall modestly on Monday. Investors await the Fed’s decision on Wednesday. We already know the Fed will cut rates once; stocks will react to the guidance. Investors are expecting a neutral cut because the recent labor and GDP reports were good. But there still is global weakness and a trade war.
There is a 75% chance of one cut and a 25% chance of 2 cuts. I don’t think a cut is on the table until the odds get to 30%. Hence, why I don’t see 2 cuts occurring. Since the last time I checked, the odds of 3 cuts increased.
It’s now more likely that there will be 3 cuts than 2 cuts. In my opinion, if a trade deal is done by the end of the year, the Fed will stop cutting rates and watch how the economy reacts to the new deal.
On Monday, S&P 500 fell 0.16%, Nasdaq fell 0.44%, and the Russell 2000 fell 0.63%. VIX rose 5.51% to 12.88, but it’s still low. Since the end of the May correction, there has always been a decline to prevent the CNN fear and greed index from showing extreme greed.
On Monday, it fell 2 points to 58 which is greed. Worst 2 sectors were the financials and communication services which fell 0.78% and 0.47%. I continue to look dumb for saying Facebook would hit its record high soon as it fell 1.91% on Monday. It’s down 4.2% in the past 3 trading days. Financials don’t like the coming rate cuts. Treasuries market hasn’t moved much in the past few days.
Beyond Meat Craters On Secondary Offering
Beyond Meat had been trading on hype ever since its IPO. This isn’t uncommon. Sometimes extremely hyped IPOs just rally to the moon because there isn’t much supply and there aren’t short sellers yet. Unless you are day trading based on the charts only, there is no way to play these types of stocks when they are exploding.
Even if you can borrow a share, you don’t want to short a stock that’s going to the moon based on nothing. Problem with making a trade on a stock that doesn’t follow its fundamentals is you have nothing to base your decisions on. How can you possibly figure out when the fundamentals will matter, and the euphoria will subside?
With that being said, I’m not saying Beyond Meat is a long term sell. After this earnings report brings a reality check to the stock, it will be worth actually doing research to see if it makes sense to invest in or bet against. The firm beat on the top line and missed on the bottom line. The stock fell because the firm is doing a secondary.
Specifically, its stock fell 5.44% during the day and 14.01% after-hours because the firm announced a secondary offering of 3.25 million additional shares. Prior to this decline, the stock had been up 257.26% from its first close on May 2nd.
It’s not a good sign that shareholders are cashing out.
Beyond Meat - They are selling 3 million shares and the firm is selling 250,000 shares. At the price of $222.13 per share, the offering would raise $721.9 million. I have a hunch, not even close to that amount will be raised.
If the stock keeps falling like it has after-hours, the secondary might be canceled. The CEO wants to sell 39,130 shares and the CFO wants to sell 55,530 shares. Very few people in the world wouldn’t want to sell at such high valuations. Problem is these sales send a strong negative signal to the public.
Beyond Meat’s Losses
Beyond Meat reported 24 cents in losses per share which missed estimates for an 8 cent loss. I don’t think you should worry about the losses because it is making big investments in production. It reported $67.3 million in revenues which beat estimates for $52.7 million.
Coverage the stock has gotten in the news amounts to a lot of free adverting. Net sales growth was an enormous 287%. The firm raised its full year revenue estimate from $210 million to $240 million.
The firm is partnering with Tim Hortons and Blue Apron. McDonald’s is still waiting to see how the situation plays out. Chipotle’s CEO stated the firm’s plant based meats are too processed. He will change his mind if demand for these products increases.
Beyond Meat will live and die off whether consumers like the taste of its product. That makes it tough to judge how successful it will be. However, don’t fall prey to the analysis that compares this firm’s market cap to some of the established players.
Those firms have more profits, but this firm has way higher growth. People mistakenly compared Netflix to the established entertainment players for years.
Young People Less Likely To Own Homes
Beyond Meat - Big revision to the savings rate doesn’t change the reality that millennials are having a tough time buying houses. It simply means the consumer is in modestly better shape than we thought.
We already knew the consumer wasn’t highly leveraged this cycle. The chart below shows the data to back up the claim that young people are having a tough time buying houses.
As you can see, just over 40% of those ages to 25 to 34 are homeowners. That hasn’t recovered much this cycle. It’s still below the levels seen before the housing bubble that started in the late 1990s and ended in the mid 2000s.
Conclusion
Beyond Meat - The market is awaiting the Fed’s decision on Wednesday. This is still a big week for earnings season, so don’t sleep on the major reports.
Beyond Meat wasn’t a major report, but it was the most publicized one. It wasn’t a bad report, but the secondary scared investors. Finally, I showed how millennials are having a tough time buying a house in the 20s and early 30s. Even though the labor market is strong, and the savings rate is higher than we thought it was.