Beyond Meat share price: What’s the real deal?

Share price of US faux meat producer Beyond Meat Inc (NASDAQ: BYND) has come back down to earth, after a massive price hike two weeks prior that had frustrated short-sellers and led to a sudden surge of long-position entrants.

What’s the story behind the sudden price rally?

Between 07 January and 14 January, the meat-alternative start-up saw its stock value skyrocket by over 40%, following reports that rival plant-based protein player Impossible Foods would not be bidding for a contract with US fast food chain McDonald’s.

That same week, McDonald’s also announced that it would double the number of Canadian trial restaurants selling burgers filled with Beyond Meat patties.

The double shot of good news, while great for long traders, had forced the company to halt trading on 14 January, due to volatility caused by an explosion in trading volume that day as share price shot up to a three-month peak of US$117.05.

The surge in activity and price had also caused much grief in the process for many existing short-sellers, who had comprised more than 41.15% of all open positions. The sudden rally had led to a cumulative loss of roughly US$557 million for those players for the month of January.

As of 17 January, share price had stabilised around US$110.

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What are analysts saying?

At the height of the price jump, investment management and research firm Bernstein had called it ‘overvalued’ and reiterated a lower-than-market price target.

‘As the risk/reward has become less attractive following the recent rally, we are downgrading Beyond Meat from Outperform to Market-Perform while keeping our target price at $106,’ Bernstein analyst Alexia Howard told CNBC, adding that the company’s near-term sales growth is already largely priced in which means further rallies are unlikely.

Bill Baruch, founder and president of Blue Line Capital and Blue Line Futures, agrees that the ‘price surge has run its course’, and that it would have to close above its Fibonacci resistance of US$135 in order to grow more legs.

‘January Effect’

For others, the price boost was more of a ‘January Effect’ – a rose-tinted phenomenon that sees Wall Street revisiting the previous year’s underperforming stocks in new year-optimism, than a reflection of the company’s profitability.

‘You’ve got some people that are buying that weakness, hoping maybe for a pop, which they’re getting. Definitely, that’s adding to the short squeeze,’ Quint Tatro, chief investment officer, Joule Financial told CNBC’s Trading Nation programme.

‘But it’s too soon to tell if this is a real turnaround or not. We would need several quarters of improved track to profitability before we could ever be a buyer of this name here,’ he said, adding that he would not advise investors to buy Beyond Meat shares.

The rise in share price was also likely caused by an uptake of trade positions by institutional investors who had been waiting on the sidelines for better opportunities since the firm’s IPO lock-up period expired in October 2019, according to Berenberg Bank analyst Donald McLee.

‘I think maybe now that you’ve seen the calendar flip over, on the institutional side people are taking a closer look and actually putting in positions’, said McLee, who had an initial price target of US$100 for the stock.

Since the start of the year, share price of the Los Angeles-based lifestyle food company has gained nearly 55% from US$75.64 on 02 January.

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