Beyond Meat’s Valuation Is ‘Absurd,’ Says Stock’s First Short

(Bloomberg) -- Now that Beyond Meat Inc. has soared about 225 percent since going public last week -- and saw the strongest first day of trading for an IPO since the 2008 financial crisis -- the first skeptics on Wall Street are coming out with guns blazing.

The valuation has become "absurd" and the stock should pull back soon, according to Atlanta-based Harrington Alpha Fund founder Bruce Cox. His newly launched long/short fund initiated a short position in the stock on Wednesday, the first fund manager to go on record as questioning Beyond Meat’s runup.

"The valuation, by any metric, is out of control," Cox said by phone, pointing to the stock’s elevated trading volumes. "It will definitely roll over...it’s a matter of when."

Cox, former senior vice president of investments at Stifel, said that anywhere in the $40s --where the stock opened in its first day of trading -- is a more reasonable price. He predicts that sell-side analysts, who’ll be able to weigh in on the stock after research restrictions expire on May 28, will advise clients against buying shares at these levels.

Beyond Meat shares fell as much as 4.8 percent on Wednesday, its first down session since it started trading on May 2. Company representatives didn’t immediately respond to calls and emails seeking comment.

Traders surveyed by Bloomberg News said they were quoted borrow fees of 36% to 111%, a sign of how early it is to short the newly minted stock. Data points remain incomplete and will be more reliable in a day or two, said Ihor Dusaniwsky, head of research at financial analytics firm S3 Partners. Early data from S3 show short interest representing about 6.6% of Beyond Meat’s float, with the last financing rate at 19.7%.

Goldman Sachs, JPMorgan, Credit Suisse, BofAML, Jefferies and William Blair are among banks that managed the company’s initial public offering who may publish research after the quiet period ends. The stock has already received two bullish initiations from Freedom Finance and Bernstein, but with widely different price targets, $28 and $81, respectively.

Cox said fundamentals don’t support the current valuation and noted that companies --like Tyson Foods Inc. -- can "pretty easily" enter the market. Bernstein analyst Alexia Howard acknowledged the competitive dynamics in the alternative meat market in her initiation note on Monday, but expressed optimism that rising consumer demand should allow for multiple players.

Howard predicted the total addressable market could reach about $40.5 billion in the U.S. over the next decade. If Beyond Meat can grow its market share to 5 percent from 2 percent currently, this would imply sales of $2 billion in 2028. The El Segundo, California-based company in 2018 posted revenue of $87.9 million.

The stock’s options contracts started trading today with little fanfare as only about 7,900 contracts changed hands. Lyft options, which traded for the first time on April 4 since its IPO, shows a total contract volume of almost 47,000 for its options debut.

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