Beyond Meat Shows Signs That the Party May Be Over

Beyond Meat

Beyond Meat announced a new product after the close on Monday, which got traders excited enough to push its stock price up by 18% overnight. This gain is all gone now.

Beyond Meat’s IPO has been a phenomenal success so far. While we often see its opening price at $25, that’s just what the big institutions paid for it before its release to the market, and it’s actually more telling to see where the stock has come from when it starts trading.

Beyond Meat initially opened at $46 per share back on May 2, and never went below $45, not that day or at any time since. That in itself is a very bullish indicator, only dropping $1 a share initially, where we usually see more hesitation and more movement to the downside as traders jostle with market makers in these nascent moments of a stock’s life.

Neither the traders nor the market makers had their heads down though and everyone looked up during the first four trading days, and it was only on the fifth day that Beyond Meat had its first down day. A three consecutive day selloff occurred, but it still stayed above $60 during this time, and then continued its movement upward.

The stock has moved up and down a fair bit over the time it’s been on the market, and even hot IPOs tend to do a fair bit of this, even one as strong as this. June 10 saw this stock move all the way up to $168.10, and then the cries of protest from the analysts really grew loud and contributed to people feeling a little more cautious and pushing it from there to $126.04 the very next day.

Losing that much in a single day would normally be a real red flag, but for Beyond Meat, this just represented giving part of the gains it put in over the previous two days back. This big drop in fact still had them up over $26 a share over the past three days, two up ones and then this down one.

At this point, people really started to become worried that the fun was over and this may have been the end of this crazy run, where it might be a while before it got back to the $168 range, and may even give even more back as people started thinking about things like valuations or how many years of future earnings this represented.

The Last Drop Off the Table Still Had This Stock Landing on its Feet

We wrote an article on the stock back then reassuring our readers that these aren’t the sort of things that would constrain the stock price unless people wanted it to, as future earnings or even earnings themselves don’t have any meaning with a stock price other than the meaning that traders and investors wish to impart. Stock prices are entirely determined by the market, on whatever basis they want to determine them by, and it did not look like the overall market was ready to place limits on this just yet, meaning that the expectations for it still appeared to be positive.

Sure enough, the stock moved forward, and in just 4 trading days, it made it all the way back to $168 and added a little more for good measure, hitting what was then an all-time high of $169.96 on Monday.

Eventually though, when price to earnings ratios get too crazy, more and more people start to worry about this. With a price that was 52 times 2019 projected earnings, this had analysts freaking out and this led to at least some players showing more restraint. These things are self-perpetuating, as building fear drives prices down, just as building excitement drives them up.

Seeing this go over 50 can serve to be a line in the sand for some people, and the question then becomes where enough people have surpassed their comfort level to stop this show and even reverse its course. Whatever this multiple becomes, whether its 50 or 500, or the negative ratios we get with companies that are losing money, this in itself never affects a stock’s price, not even by a little. However, stock prices are about perceived potential for price movement, and if these concerns can cause the overall expectation of a stock’s future price to be constrained, this will translate to price.

We cannot ever achieve a proper understanding of how stock prices move unless we understand that they always driven by perceived value. Fundamental analysts get very confused about this, where they claim that a stock should have a certain price based upon their calculations, but their calculations include assumptions that are simply not valid, such as there being some external forces apart from the market that decide these prices. The reality though is that market forces determine all of this, every time.

Beyond Meat is a good example of this in fact, as the people who have been riding this have been doing this based upon an expectation of positive momentum. When you get enough people thinking this way, this manifests itself in price, just like it has with this new stock.

We could say that there have been two forces fighting it out in the market, the excitement of a hot stock and the caution that we may have moved up so far that the move may not last longer. Included in this would be those who think P/E multiples of 52 are too high and refuse to enter or even exit and take profits, as well as anything else that people look at, which can include a number of other things, how much they have made so far in particular.

Unless we understand this, we will always be risking that our own criteria of the way we expect a stock will not manifest itself in reality. The best we can do is use this to predict what the expectations of the market will become, in this case how much a high P/E ratio will bother traders in this particular case.

Those who listened and did not buy or sold when the price was much lower because they paid attention to the fundamental analysts made a big mistake and paid the price. What was missed is that when riding a hot stock, this can just be about cashing in on the move and nothing else, and as long as it keeps going, there’s no reason to want out.

The performance of a stock is, if anything, inversely related to price to earnings ratios. We’d be better off doing the opposite of what these people tell us, and not buy the dogs that have so much so-called value because this means people don’t like the stock, and their liking the stock or not is the only thing that moves its price. Neither should we shy away from stocks with higher ratios because this means that people like it a lot, and if they keep liking it enough, this will push up the price more.

If the market starts liking a dog with a low ratio, now we’ve got something to go with, but without the liking, the dog’s day will never come and it is more likely to get worse. This is what we call a bearish stock in fact, and the ones with the higher ratios are called bullish. In this case though, the bullishness or bearishness is determined by actual results and not just hope or confusion.

However, we do need to watch where this road takes us, as the liking can come to an end and go the other way pretty hard. There is a limit to any move, perhaps trading your entire farm to buy a tulip bulb that only should be worth pennies, or $20,000 for a Bitcoin that has no intrinsic value at all. Perhaps $169 per share is the line with Beyond Meat, but the only real way to know is to see where its momentum dies.

We got a chance to test this with the trading that went on after the bell Monday, extending into Tuesday, and the verdict is that, for the first time, we really may be seeing a top here.

If we were really ready to leave the $169 area behind, Tuesday would have been the day. The fact that this did not happen speaks pretty loudly to the possibility that the party may over for now.

Tuesday’s Performance May Mark the Actual End of the Road for Now

Beyond Meat announced an exciting new product, and this initially looked like it might take us to a new level. The stock not only went up, it went up 18% in overnight trading, taking it all the way to $200 by the time the real market opened.

By the end of the trading day, it was all the way back to $169. It didn’t even take all day to do this, as by noon the $200 it started had become $162. The second half of the day was spent recovering from this, where the stock worked its way back to what is becoming a pretty popular price range, in the area where it stalled a week ago, and where it sat on Monday as well.

A short squeeze has been helping to push this up, although most of this was simply from people just plain becoming excited and paying more and more for it, we just saw another squeeze of a different type on Tuesday, where the amounts above $169 simply got squeezed out of the stock in less than 2 hours.

Those who shorted it around the open were very well rewarded, although short sellers who got in earlier at much lower prices have a much less happy story to tell. We’ve seen this action before at various points where we’d move up and then give some of it back, but this particular dip was louder and looks a lot more decisive, and perhaps indicative of what is to come.

This pushback was mostly driven by profit taking, and when you are up as much as most traders are with this stock in such a short period of time, this causes people to want to book these profits, which means exiting their trades. Just like forward momentum that is driven by people clamoring to get in a stock, when profit taking starts to move things the other way, this can cause a fair bit of momentum in itself, the downward kind.

When profit taking takes over the ship after a big run, you can count on the ship reversing its course. We can’t say that yet but the signs are starting to appear now.

All good things must come to an end they say, and the current story here is that we have seemed to reach a real point of equilibrium between the excitement to get in to take further advantage of this move and the will to cash in on the move by taking profits before some of them disappear.

We might then think that these recent events and this seeming balance mean that the stock has become neutral now, but there are still a lot of traders that are still in it but may be looking to get out soon, which can add to this. I’s not that this stock went sideways on Tuesday, it instead essentially suffered a 15% loss. This is downward momentum to be sure.

With a more mature stock, when we get 15% drops, people might start jumping in more to buy it with the expectation that it will get back there, but in the case of Beyond Meats, this may not influence things very much. It’s anyone’s guess when this stock will get back to $200, but if it couldn’t hold it Tuesday, and gave back so much so quickly, this does not bode that well for it quickly leaping this filled gap down and taking us even further.

While the bias was still on the upside with the $42 haircut we got the Tuesday before, this Tuesday’s $31 trimming looks more ominous. The bias may be shifting here to the short side. With the way that this stock has traded thus far, we could still see a resurgence of the craze that has took us this far, but traders and investors need to be more wary now.

Eric Baker


Eric has a deep understanding of what moves prices and how we can predict them to take advantage. He also understands why so many traders fail and how they may help themselves.

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