Text size

After rising so dramatically so quickly, Beyond Meat’s stock is so well done that investors might be forgiven for concluding there’s no juice left in the trade.

The plant-based protein company’s stock was priced at $25 in its early May initial public offering, opened at $46, and then traded as high as $201.88. The stock is up some 580% at its current price, which makes the stock market’s almost 20% return this year seem like small beer.

Yet investors remain unusually bullish on Beyond Meat stock (ticker: BYND), which is trading around $170 ahead of the company’s release of second-quarter earnings on July 29. The sentiment is fairly incredible at a time when most investors are afraid of their own shadows and sit around debating what may happen to stock prices after the Federal Reserve’s rate-setting committee meets at month’s end.

Editor's Choice

“Beyond Meat is the new Tesla [TSLA] and the market’s latest cult stock,” Michael Schwartz, Oppenheimer & Co.’s chief options strategist, told Barron’s.

To be sure, Beyond Meat is a different kind of stock at precisely the right time. Investors want a new theme to focus on so they don’t have to think about all of the old-world worries, like economic data and trade wars. The urge to escape is so powerful that investors are even willing to forget that justifying a $168 stock price for Beyond Meat using a discounted-cash-flow analysis means modeling $4.9 billion in 2029 sales, rather than the $3.5 billion currently assumed by JPMorgan’s Ken Goldman.

“Is $5 billion in sales in 10 years out of the question? No, but it’s not likely, either, in our view,” Goldman wrote in a recent report to clients. “Similarly, we could model 2029 gross margin increasing to 43.3% versus the 35.5% we expect; this, too would lead to $168. But the food group’s median is only 29%.”

Though the valuation argument prompted Goldman to give the stock a Neutral rating—which might be interpreted as indicating the bank is telling clients to sell the stock that it just took public—the opposite is true. In the near term, he told clients he is “increasingly optimistic” on the stock and he would trade it.

The last time Beyond Meat reported earnings, in early June, the stock surged, rising some 100% and pushing above $200. On the earnings call, the company’s management said 2019 full-year sales would be $210 million, about 2% higher than Wall Street was expecting—and that triggered a buying stampede that is estimated to have cost the legion of short sellers aligned against the stock as much as $1 billion.

It is impossible to know what will happen when the company next reports earnings. Most seasoned investors admit that trading earnings is often like flipping a coin. But if you like risk, and you have an appetite for volatility, Beyond Meat is a must-trade ahead of earnings.

Newsletter Sign-up Review & Preview Every weekday evening we highlight the consequential market news of the day and explain what's likely to matter tomorrow. PREVIEW

When the stock was around $172.99, JPMorgan’s derivatives strategist, Shawn Quigg, recommended investors consider buying Beyond Meat’s $175 call options that expire Aug. 2 for $10.30. (Calls increase in value when the underlying security price increases.) If the stock is at $210 at expiration, the call is worth $35. Of course, if the stock expires below the call strike price, the money spent on the call is lost.

The stock has since rallied above the strike price. Investors who think the stock will rally higher could consider buying calls that are slightly above the current stock price and that expire Aug. 2.

Speaking of risk, tastytrade, an options education website, recently launched Quiet Foundation, a free online risk-analysis program. We recognize the irony of mentioning risk management when we are also recommending a risky trade. But an increased awareness of risk is the one issue that unites all investors, especially in a market that is generating intense disagreement about what comes next.

Investors who upload their portfolio to the website get a report that evaluates key risk factors, including portfolio diversification, the probability of losses or gains within a year, how well their investments fared relative to the S&P 500 index, and how much risk was assumed relative to the benchmark. Other measures focus on net opportunity value, which identifies volatile positions—and even position liquidity—which could prove critical if the Fed startles markets.

Email: editors@barrons.com