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Why Beyond Meat could still be a monster investment despite earnings selloff

Brian Sozzi
Editor-at-Large

Wall Street was beyond unhappy with the surging Beyond Meat (BYND) on its earnings day Monday evening — but perhaps they should re-read the earnings call transcript.

Beyond Meat’s stock — up about 800% from its wildly successful May IPO — cratered 12% in early trading Tuesday as investors fretted about a surprise new share offering. The alternative meat-maker announced that it would be selling an additional 3.25 million shares of common stock just moments after its earnings hit the newswires.

Three million of these shares are held by current stockholders, and 250,000 shares will be newly issued and are set to trade on August 1. This move allows current shareholders to cash out ahead of the typical lock-up period expiration date. Beyond Meat founder Ethan Brown does plan to unload a small amount of shares.

Optically not a good look here for a company that has enjoyed one hell of a response to being a public company to say insiders will be selling. In the market’s eyes, the read is that insiders don’t see much more short-term upside in the stock. The harsh market response should serve as a learning lesson for the Beyond Meat’s executive team that in public market world, when big material news is coming, it’s often best to give a little guidance on it.

Overall, Q2 was strong

Nevertheless, from a pure fundamental perspective Beyond Meat delivered on a host of fronts in the second quarter. One can easily argue that the company gave investors more than enough arsenal to stay optimistic longer term on the stock, even at its ultra-hot valuation levels.

“We continue to see Beyond Meat as a beat-and-raise story, one for which — at least in the near-term — fundamental momentum may matter more than valuation,” wrote JPMorgan analyst Ken Goldman in a note to clients. “With (a) short interest still hovering around 50% of the float at last measure (well above the group average of 6.8%), (b) Nielsen data getting better every week recently, and (c) 3Q likely to impress, we still view being negative on the stock as a risky proposition right now.”

Here are several upbeat things Yahoo Finance spotted from Beyond’s quarter.

  • Beyond Meat delivered adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $6.9 million versus a loss of $5.6 million a year ago powered by a 287% surge in sales. This marked the first time Beyond Meat was profitable on an adjusted EBITDA basis, underscoring progress by the company on winning new business with restaurants and more shelf space in big box retailers such as Target.

  • Beyond Meat raised its full-year adjusted EBITDA outlook, now seeing profitability from breakeven previously.

The odds and ends of the earnings call

FILE - In this May 2, 2019, file photo Beyond Meat CEO Ethan Brown, center, watches as his company's stock begins to trade following its IPO at Nasdaq in New York. Plant-based meat maker Beyond Meat beat Wall Street’s expectations in its first earnings report since its IPO last month. The El Segundo, California-based company lost $6.6 million, or 95 cents per share, in the first quarter, up slightly from a 98-cent loss in the same period a year ago. (AP Photo/Mark Lennihan, File)

Earnings calls are always tricky to navigate for investors — often filled with a lot of corporate jargon and BS. But two earnings calls in, Beyond Meat has shown it can run a successful earnings call by keeping language straightforward and sharing deep insight into the business.

Several developments from the call:

  • Brown called out Beyond Meat now having 53,000 points of distribution worldwide, up materially from 30,000 in May. That’s among the clearest signs yet the company’s product is strongly in demand and it has enough manufacturing capabilities to service more customers.

  • Beyond Burger sales — the largest and most important business for the company — surged 177% for the three months ended June 19.

  • Brown reiterated Beyond Meat’s long-term gross profit margin guidance of mid- to high- 30%. Gross profit margins were 33.8% in the second quarter — it’s likely Brown is being conservative here on the guidance.

Beyond Meat is proving itself to be a conservative guidance provider — that much is clear two quarters into public company life. Brown said on the call the guidance does not take into account big recent distribution wins with Dunkin’ Brands and Tim Horton’s. But due to what looks to be a solid response to products released in test markets, a wider rollout for each fast-food chain is likely — and so is another guidance raise from the company this year.

Yahoo Finance’s Heidi Chung contributed to this story.

Brian Sozzi is an editor-at-large and co-host of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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