Beyond Meat Faces Key Test as Wall Street Reviews Its Hot IPO

(Bloomberg) -- Beyond Meat Inc. is set to get its first real stress test as sell-side analysts prepare to issue their initial takes.

The maker of vegan beef and sausage products is likely to see a flurry of initiations as research restrictions on underwriting banks expire next week. Goldman Sachs, Bank of America Merrill Lynch, Credit Suisse, Jefferies and JPMorgan are among the firms that led the El Segundo, California-based company’s initial public offering, and may kick off coverage on May 28.

Investors are waiting to find out if analysts will predict still greater returns for the hot IPO, which has already more than tripled since going public on May 1. Its rapid growth has also attracted bearish bets, with short interest soaring to 51% of free float, as of Friday, according to financial analytics firm S3 Partners. The stock is now among the top 10 most-shorted U.S. companies, the firm’s head of research Ihor Dusaniwsky said in an email.

“I would imagine that we’ll see more come out in kind of a hold versus a buy at this point,” Bloomberg Intelligence food analyst Jennifer Bartashus said in a telephone interview. The stock is “still quite high, and the question is: how much higher can it go and how quickly?”

Analysts currently covering Beyond Meat have mixed views on its prospects. Bernstein rates it at the equivalent of buy, while two others have ratings equivalent to hold. Among them, Freedom Finance’s Erlan Abdikarimov has called for an imminent correction.

Still, despite taking a pause this week, the stock is trading at 55 times its 2018 net revenue, which compares to 1.3 for the average price-to-trailing 12-month sales ratio for U.S. packaged-food companies tracked by BI over the past five years.

Read more: History Doesn’t Paint Pretty Picture for Beyond Meat

Beyond Meat will have to prove it can manage investor expectations following its successful IPO, BI’s Bartashus said. At the top of the list is the pace of new customer acquisition.

“Everybody is willing to try it because it’s in the news, but how do they translate that into sustained market share gains and sustained growth?” she said. “We don’t have quite enough insight into management’s strategy yet.”

The company may provide some answers when it reports first-quarter earnings on June 6.

©2019 Bloomberg L.P.