BEYOND MEAT STOCK ANALYSIS: Vegan Stock
The most important news for today is $PFE acquiring $ARRY for $11.4 Billions. Array Biopharma is a direct competitor of $CELG which is being acquired by $BMY . $PFE certainly paid a big premium on this acquisitions since the stock is already 60% up today and it is still 10% short of the acquisition price. I've not looked at $ARRY yet so I don't know for the time being if there is any arbitrage trade possible here like I'm currently doing with $CELG .
Now let's talk about $BYND . This company is up by about 150% since its IPO a few weeks ago. After disappointing IPOs from $LYFY and $UBER , Walls Street seems to love this stock. The company itself makes vegan meat products and is targeting a growing market. Their products are actually plant based and they don't use any genetic engineering. But there's a problem with it. Only one of their patents have been approved on this process and they have 21 patents pending. The patents are only issued on the process they obtained they created this meat from plants. I've looked at the patent, so they have to give all the details of how they achieved this. Now, it won't be hard for a competitor with lots of money, let's say, $TSN to make a small adjustment to this process and produce their own products. They actually already did it. The advantage that Beyond Meat had over its competitors was that its products could be sold in the Meat aisle in supermarkets. Now, even $TSN is doing the same thing and there no real barrier of entry which would prevent any one else to do the same thing. If the product was GMO-based, things would have been different. For example, when Monsanto( now $BAYN.DE ) patented their seeds, the farmers were not even allowed to reuse the same seeds for the next season, they had to buy them from Monsanto. It is because, Monsanto patented the seeds themselves and not the process.
Now, let's talk about the numbers of Beyond Meat. The company has a good balance sheet compared to the IPOs I've seen this year. They have been doubling revenues almost every year. In 2016, they had a negative Gross Profit (they actually lost more money than there revenues) but in 2017 and 2018, the income and cashflow statements got better. Now let's talk about the intrinsic value of the company. We will have to base this on revenues since they are not profitable yet and they say on their S-1 form that they may not be profitable anytime soon. Let's not forget that they just got a lot of money from the IPO and this should also be accounted on their future cash flow. The revenues last year were about $70 millions. I'm willing to give maximum an intrinsic value of 10 times revenues, so $700 millions. Now, because of the risks associated with this company I'll be using a margin of safety of 50%(I know its high but I cannot go lower). This means a fair value for the company would be $350 millions, or $5/share. Currently, the company has a market cap of $10 billions(142 times revenues). That's insane and not a stock for me to invest in. But because of the volatility, I believe that for some of you, it may be good for trading.
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