Beyond Meat’s stock is flying high. And I have been getting more emails on this stock than any other. A good way to think about this stock is to ask the question: “Is Beyond Meat like Tilray or Tesla?”
Let’s explore the answer with the help of a chart.
The chart
Please click here for an annotated chart of Tilray TLRY, +1.75%. Tilray was the favorite stock of the momo (momentum) crowd, just like Beyond Meat BYND, -8.52% is now. Please note the following:
• The chart shows that Tilray’s stock experienced a massive short squeeze after the IPO. Algorithms at The Arora Report show that the majority of the rise in Beyond Meat’s stock is due to a short squeeze, just like Tilray.
• In Tilray, the short squeeze was facilitated by a low float after the IPO. Beyond Meat also has a low float.
• Tilray did a secondary offering to take advantage of the high stock price, just like Beyond Meat is doing now.
• The chart shows that The Arora Report gave a signal to short-sell Tilray at $280. The stock is trading a $40 as of this writing. A partial position is still being held. In short selling, money is made when a stock falls.
• Before the decline in Beyond Meat, our system at The Arora Report gave a short-sell signal. However, our human judgement caused an override of that signal and did not publish it, primarily because no shares of Beyond Meat appeared to be available for borrowing. We could have published the signal, but that would have frustrated investors because the shares were not available.
• Tilray had the first-mover advantage in marijuana, just like Beyond Meat has in plant-based meat.
• Tilray has a huge market opportunity ahead of it, just like Beyond Meat. There was a lot of excitement about marijuana stocks, especially Tilray, just like there is a lot of excitement now about fake meat, especially Beyond Meat.
• Tilray’s stock would rise on news of partnerships, just like Beyond Meat’s climbs on news of partnerships.
• Now that the short squeeze is over, Tilray’s stock no longer flies on the news of partnerships. Expect a similar fate for Beyond Meat, with the exception if it announces an exclusive partnership with a large company such as McDonald’s MCD, -1.01%.
• Tilray had plenty of competition, but the stock market was ignoring it. Beyond Meat also has plenty of competition, but the stock market is ignoring it, just like it ignored the competition to Tilray.
• Beyond Meat is always making headlines in financial media, just like Tilray did.
• Other than buying from short squeezes, buying in Tilray was coming from the momo crowd; the same is the case with Beyond Meat.
• During the rise, Tilray saw no real material smart money (professional investors) buying the stock. So far, algorithms at The Arora Report have not detected any real material smart money buying in Beyond Meat.
• Tilray benefited from scarcity of publicly traded marijuana stocks in which to invest. Right now, Beyond Meat is benefiting from the scarcity of publicly traded plant-based meat stocks in which to invest.
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Differences from Tesla
Some bulls are expecting Beyond Meat’s stock to behave like Tesla’s TSLA, +1.68%. From a technical perspective, there is no validity to such a contention.
From a fundamental perspective, five differences between Beyond Meat and Tesla stand out.
1. Tesla was going in the direction of major trends of a cleaner environment and attempts at stopping global warming.
Beyond Meat is going against the major trends of healthier foods, natural foods and avoiding highly processed foods. Beyond Meat tends to have a false aura of being healthy, but it is highly processed, high in sodium, and the jury is still out on some of the ingredients.
2. There are significant barriers to entry in the electric-car business compared with the entry into the fake-meat business.
3. The competition in the case of Tesla was much farther behind than is the case for Beyond Meat.
4. When all is said and done, there are only a handful of companies making electric cars. On the other hand, expect a large number of food companies to enter the fake-meat business.
5. For startups, entering the electric-car business is difficult because it is highly capital-intensive. In contrast, entering the fake-meat business is not capital-intensive.
What to do now
Start with Arora’s Second Law of Investing: “Nobody knows with certainty what is going to happen next in the markets.” In more actionable terms, stay humble and do not become so sure of your point of view. This stance allows you to correctly read the message of the market. The ability to correctly read the message of the market has, in part, been responsible for our success. Having said that, the probability is very high that eventually Beyond Meat stock will stumble and short-sellers will make a ton of money. Of course, the momo crowd may get burned as it often does in hot stocks. The momo crowd needs to be cautious because, so far, they have experienced only the “pump” in Beyond Meat stock. It is not uncommon in the stock market for a “dump” to follow.
Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. Nigam Arora is an investor, engineer and nuclear physicist by background who has founded two Inc. 500 fastest-growing companies. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.