Red-hot momentum play Beyond Meat, Inc. (BYND) fell more than 12% to a seven-day low in Tuesday's session after the plant-based "meat" manufacturer reported a second quarter loss of $0.24 per share on $67.3 million in revenues. Even so, revenues grew a healthy 287% during the period, while the company raised fiscal year 2019 guidance from $210 million to "above" $240 million, signaling continued rapid growth that should last well into 2020.
Aggressive sellers hit the bids when the company announced a 3.25 million secondary offering, with 3 million shares coming from selling shareholders. It's likely that these sellers are insiders astounded by the stock's rapid ascension that are taking once-in-a-lifetime lottery winnings and hitting the sidelines, forcing the retail crowd to wonder if they'll be left holding the bag in coming weeks.
The stock float is just 38.25 million shares on 60.12 million outstanding shares, while the 3 million shares assigned for sale probably come from the 22 million shares owned by IPO participants and other insiders who got in at the $25 pricing. The stock opened at $46 on the first trading day and never looked back, lifting more than 900% into last week's all-time high at $239.71. In turn, this has triggered a game of musical chairs, with the entire float rolling over every three days or so.
Momentum rallies can end abruptly after the type of bearish news that has gotten Beyond Meat into trouble this week, for two reasons. First, smart money assumes that insiders understand the company's prospects and when rising prices become unsustainable. Second, the offering will add about 8.5% to the float, diluting ownership value while forcing price action to find additional buying pressure to sustain the upside.
And let's state the obvious. Plant-based "meat" products have a bright future, but this market segment is hardly a new one, with dozens of products already on restaurant menus and supermarket shelves. In addition, the company will face intense competitive pressure in coming years as mainstream food manufacturers ramp up their own tasty but healthy meat alternatives and use massive footprints to take more shelf space.
BYND 60-Minute Chart (May – July 2019)
The rally stalled near $100 just two weeks after the IPO (red line), generating nearly three weeks of sideways action, ahead of a June 7 breakout that gained immediate traction. The stock topped out near $190 just three days later (blue line) and failed a breakout attempt on June 18, easing into a trading range with support near $140. It completed a second round trip into resistance on July 22 and took off in a final advance, posting an all-time high near $240 on Friday.
The secondary news triggered an opening gap that landed on the blue line of support near $190, yielding a bounce back to the 50-hour exponential moving average (EMA), which now marks resistance. Tuesday's intraday bounce nearly filled the gap, raising the odds for lower prices, but the stock could still post a failed high up to about $220. Bulls will resume control above that level, likely forcing a fresh breakout that sends short sellers scrambling for the exits.
The 200-hour EMA is lifting quickly into support, while the .50 retracement of the five-week rally wave has also aligned near that level. This convergence highlights the need for bulls to hold the line at all costs or risk a breakdown that ends the momentum trade, drops the stock back to early June levels, and sets the stage for additional downside that could easily reach the 100% retracement at $140.
The Bottom Line
Beyond Meat shares bounced at breakout support near $190 after the company announced a secondary offering, but the stock needs to trade above $220 to resume its bullish trajectory.
Disclosure: The author held no positions in the aforementioned securities at the time of publication.