Tuesday, July 30, 2019

"Beyond Meat acts rationally, upsets investors" (BYND)

A few days ago, in "In Pre-Market Trade, Beyond Meat Is Approaching Escape Velocity (BYND)" I mentioned Wall Street titan Daniel Drew:

"He who sells what isn't his'n, Must buy it back or go to prison."
-Daniel Drew
Wall Street speculator*
In addition to his comment on short-selling he applied the term "watered stock" to finance.
In 1867 the owner of the New York Central Railroad, Cornelius Vanderbilt, decided to buy the Erie Railroad out from under Uncle Dan'l.
Drew responded by the tripling the outstanding stock with illegally issued shares.
Good times....
They want stock? Give 'em stock!
Some things never change.

After closing down in yesterday's regular session,  -$12.77 (-5.44%) at $222.13, the stock is off a further $28.70 (12.92%) to $193.43 with an hour to go before the open.

From FT Alphaville:
Say you found a company which aims to sell a new type processed food. You toil for just under a decade, perfecting your product, and eventually you begin to bring in revenue. In 2016, the business does $16m of sales, and then growth begins to accelerate. Just two years later, that figure has quintupled to $88m.

Even though you’re still a small company, losses are limited, and the innate operating leverage of scaling a packaged product means that profitability is within sight.

So, of course, you decide to list your shares on the market. The date chosen is May 2. Your early investors have backed you, and they deserve a reward for their perseverance. Under the terms of the offering, they, and you, can sell your holdings 180 days after the listing, on October 29.
Through no fault of your own, your business turns out to be one of the only publicly traded companies offering a product which feeds into the zeitgeist of passive eco-activism. That product is plant-based protein. And your business is called Beyond Meat.

Investors go gaga for your stock. The shares are priced at $25, but they open on the first day of trading in April at $46. Three months later, they touch $230.

It’s now mid summer, and just 90 days ago you sold 8.75m shares to raise $240.6m. Money has clearly been left on the table: the number of shares you could sell now for the same amount of cash is just over 1 million.

To boot, the company’s valuation, by any rational measure, is now extreme. A $13bn market capitalisation means the company trades at 54 times 2019’s estimated revenues. Your peers are valued at between 1 to 2 times sales, albeit with far lower growth expectations.
The situation presents a dilemma: your 5 per cent stake is now worth just over half a billion dollars, but you can’t sell any shares until late October. Plus, an exuberant valuation means that issuing equity to add to the IPO proceeds is a no-brainer, even if it dilutes new shareholders hoping to ride the equity to riches....MUCH MORE