It's typical to see stupid things near the end of an economic and market cycle, and Beyond Meat (BYND) is a perfect example. I have no issues with the company's products. If you want to eat fake meat made from plants, then more power to you. Still, I don't understand why management doesn't call the product a plant burger or a veggie strip. It has nothing to do with meat. Personally, as a carnivore, I'll continue enjoying my juicy beef burgers, grilled steaks, pork sausages, and chicken sandwiches.
What is stupid is this company's valuation, which is beyond ridiculous, and it reminds me of the insanity I lived through in the late 1990s with internet stocks.
Beyond Meat posted its first earnings report since going public, and the company beat estimates by a penny! The loss of 14 cents was a penny better than expected. Investors are clearly ignoring the GAAP figure of a loss of 95 cents, which missed by 80 cents. Earnings are irrelevant for these unicorn IPOs, as the focus is on the revenue, and on that front, the company reported $40.21 million for the quarter. That beat the estimate by a whopping $1.2 million. The $1.2 million beat was good enough for an after-hours increase in market cap of $1 billion! That is beyond insane in my book, but it is a true reflection of where our financial markets stand today.
I don't know who in their right mind would pay $7 billion for a company that is expected to rake in $210 million in revenue this year. That is a whopping 35 times revenue! The company is expected to lose money this year and next. The research reports that must be written by analysts from firms who underwrote the IPO, undoubtedly recommending the purchase of the shares, should be pure comedy.
This is just another signpost telling me that the end of the economic and market cycle is coming sooner rather than later. You don't see investors supporting these types of valuations at the beginning or the middle of the cycle. It always comes at the end. I'm still convinced that the beginning of the end started in January 2018 because, since that time, the stock market has been flat. What you see below is a very gradual topping process.
Moving beyond meat and on to stupidity, a disappointing ADP employment report sent stocks soaring for a third day in a row today. Investors think a weakening labor market, along with other economic deterioration, will force the Fed to lower short-term interest rates. The ADP report only showed 27,000 new jobs being created compared to expectations for 175,000. Bulls should be cheering for steady, if not improving, economic data that validates what are already historically high market valuations. A rate cut sends the opposite message - the economy is in serious trouble.
If the BLS reports an equally dismal number for job creation in May, convincing investors that a July rate cut is a certainty, I suspect the stock market will start with a fourth day of gains. Yet, I don't think it will last.
If expectations for a rate cut grow, it will embolden President Trump to take a harder line on negotiations with Mexico, leading to the implementation of his 5% tariff on Monday. That would be very bad for the stock market. Making matters worse is that he is either unwilling to admit, or doesn't understand, that his tariffs are taxes on U.S. companies and consumers. His policies will slow the rate of economic growth and stymie corporate profit growth. Assuredly, he will blame Fed policy for any adverse consequences, but the Fed is running out of ammunition.
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Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: Lawrence Fuller is the Managing Director of Fuller Asset Management, a Registered Investment Adviser. This post is for informational purposes only. There are risks involved with investing including loss of principal. Lawrence Fuller makes no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made by him or Fuller Asset Management. There is no guarantee that the goals of the strategies discussed will be met. Information or opinions expressed may change without notice, and should not be considered recommendations to buy or sell any particular security.