Is it time to sell Beyond Meat shares?

Investors can expect to see a large number of shares become available for trading later this month, as Beyond Meat’s [BYND] IPO lock-up period is due to end on 29 October. Beyond Meat’s pre-IPO shareholders have been locked into an agreement that they would not sell or hedge their position in Beyond Meat’s share price, since 2 May.

The total number of shares held is pushing 48 million and there are currently 13 million freely trading shares at the moment. Adding more than 40 million more means that Beyond Meat’s share price is likely set for a volatile beginning to November, according to Seeking Alpha.

Furthermore, when considering the participation in the early share release, which involved 3 million shares, it could be argued that pre-IPO shareholders are motivated to sell at the current price, presenting opportunities for anyone looking to buy-in. 

It is important to note, however, that 16 million of the 48 million shares up for grabs are held by affiliates of Beyond Meat and are therefore subject to Rule 144 – which sets out the conditions under which restricted, unregistered and control securities can be sold or resold.

This means they must limit the rate at which their shares can be sold onto the market. On top of this, there is an additional 6.2 million shares presenting underlying options from 29 October with the average price of $11.12 per share, bringing the total number of shares released from lock-up to 54 million, Seeking Alpha notes.

Is Beyond Meat overvalued?

The inclusion of 40 million free trading shares to the market will increase this float by a factor of four, according to Seeking Alpha, negatively affecting the market price of Beyond Meat.

Three million shares were sold in the early sale by pre-IPO netted shareholders at $154 per share, the share price has since declined to around $123.92 as of 16 October close. Nonetheless, the price has yet to change so drastically that investors still holding shares should be concerned as 29 October edges closer.

Beyond Meat is now gearing towards the end of the lock-up and therefore the release of an influx of shares into the market. Its current share price has been calculated according to reputation and word of mouth alone, so it’s difficult to procure the objective evidence necessary to validate the company’s current valuation. 

Existing in a very new market – plant-based meat substitutes – has benefited the company so far. However, its prediction that it will be able secure 13% of the $270bn meat market in the US is a tall order, and requires investors to invest for the long-term. 

Beyond Meat share price vitals, Yahoo Finance, 17 October 2019

Betting against?

It’s been an expensive strategy to bet against Beyond Meat so far because of its generous valuation. It will likely remain expensive throughout the month, Seeking Alpha suggests, as borrow rates will likely be high as short-sellers look to borrow shares in the run-up to the end of the month.

It is also not improbable to assume other players will be moving in on the market over the next few years - either direct competitors or private labels looking to buy into Beyond Meat itself. Either way, this will generate a more competitive edge to buying and selling, meaning the company may not be able to enjoy the current share price average.

For example, the pilot project by McDonald’s [MCD] last month pushed the stock up by 11% for one-day, showcasing how volatile markets can be when stirred by big players.

The end of the lock-up is likely to prompt even more short-term volatility, and there is a risk that the share price will decrease when shares begin to flood the market. Either way, it’s going to be a sizzling end of the year for Beyond Meat.