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Beyond Meat diluted shareholders and ratcheted up the debt load. In 2021, they posted a huge annual net loss of US$182.1-million and in its fiscal first quarter it lost another US$100.5-million.Mark Lennihan/The Associated Press

Whatever happened to Beyond Meat Inc.? Three years ago this month, the plant-based meat company went public on the Nasdaq to much fanfare and speculation. Its burgers, sausages and other products designed to look and taste like meat were going to revolutionize the way people eat, disrupt the food industry and cut the environmental impacts associated with meat-heavy diets. Investors were thrilled at the thought of owning a piece of this exciting future and did not appear to care about valuations, net losses, competition, capital expenditure requirements or lofty growth expectations. The shares (BYND-Q) initially listed at US$25 and ballooned almost tenfold to roughly US$240 in mid-2019. Alas, recently the price cratered to about US$20 before ticking upward to about US$23.

Those new to the name may be forgiven if they looked at the 90 per cent drop from the all-time high and concluded that something had gone terribly wrong, yet this is not exactly true. The corporation has indeed diluted shareholders and ratcheted up the debt load. Furthermore, in 2021, BYND posted a huge annual net loss of US$182.1-million and in its fiscal first quarter, ended April 2, it lost another US$100.5-million. At the same time, however, revenues have expanded from US$32.6-million in 2017 to US$464.7-million in 2021, the number of distribution outlets has grown from 31,000 to 130,000 locations, and the enterprise has launched popular new products like “Beyond Chicken Tenders.” Moreover, the organization is the globally preferred supplier for McDonald’s McPlant patty, currently being tested in a few markets, and is co-creating products with certain Yum Brands properties, including KFC, Pizza Hut and Taco Bell. Partnerships with global heavyweights like this should not be understated given their reach and brand value.

So, what went wrong for shareholders? The answer is simple – they overpaid. In the aftermath of the IPO, the stock was full of hype and hope, and expectations were aggressive. In the summer of 2019, investors behaved as if no price was too high. The fact is, IPOs with impressive growth prospects can actually be toxic, especially if the name lists during a bull market and is supported by a great story. Indeed, as my colleague Benj Gallander likes to point out, most IPOs end up hurting shareholders in the ensuing year as reality sinks in. Remember, in almost every case, the people pitching the outfit want to package the enterprise as a beautiful possibility and sell it for as much as they can. This is a major reason why we avoid companies that haven’t been listed for at least five years, if not 10. Though dodging names for so long means we can miss the latest and greatest growth stories, it also means we can avoid getting caught up in the fanfare. This long waiting period also gives us the advantage of swooping in and buying up shares, should we wish to, once the initial listing euphoria has faded.

Today, the BYND hype is gone, and the stock has been punished (again) after reporting weak first-quarter numbers. Instead of envisioning all the ways that Beyond Meat will change the world, analysts and owners are now focused on competition, slowing sales and margin compression. Supply chain issues, inflation and interest rates are weighing on investors as well. Additionally, BYND seems to be facing increasing skepticism regarding the health benefits associated with its food. In turn, this could be souring its products’ image. Though the business navigated COVID well over all, especially given how hard the pandemic hit restaurants, the organization is facing a host of issues, net losses are skyrocketing, and the debt load has ballooned.

Contrary investors and curious readers may be wondering whether I consider Beyond Meat a buy – the short answer is no. From this angle it remains overpriced. Moreover, insiders have been net sellers to the tune of US$17.2-million over the prior year, and profitability seems a long way off. Before getting more interested in the company, I’m looking for consistent operating income, a timeline toward net profits, and a cessation of insider selling. These milestones, in addition to better valuations and debt metrics, would make this more intriguing. Though the name may rebound without these features in place, any such rally would be risky and speculative.

The lesson here is simple: Don’t overpay for your investments, especially if you’re considering a hot IPO. BYND’s story over the past three years is a cautionary tale for anyone looking to bet big on a high growth story. Instead of falling into the hype and getting sucked in, investors need to focus on the valuations. Beyond Meat may well change the world and achieve what it has set out to do, but many of its post-IPO shareholders may not reap the rewards because, at the end of the day, the price you pay really matters.

Philip MacKellar is a writer for the Contra the Heard Investment Letter.

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