2 Stocks That Are Costly Mistakes

2 Stocks That Are Costly Mistakes

Posted On June 21, 2019 2:07 am

No investor can escape occasionally buying a bad stock. It’s painful watching a stock tumble and realizing that it’s unlikely to ever recover. Or even worse, doubling or tripling down before throwing in the towel.

In many cases, it’s not all that obvious that a stock should be avoided. In some cases, though, it’s very clear. Imitation-meat company Beyond Meat (NASDAQ:BYND) and video game retailer GameStop (NYSE:GME) look exceedingly likely to disappoint investors.

Beyond Meat

Beyond Meat, which makes plant-based products that look like meat, is having a moment. After going public in May at $25 per share, the stock went nuts. It currently trades for around $165 per share, good for a valuation of roughly $10 billion.

The company expects to produce revenue of at least $210 million this year. That guidance puts the forward price-to-sales ratio at nearly 50. That’s far higher than many fast-growing software-as-a-service companies. It’s pure insanity.

Valuation alone is enough reason to stay far away from Beyond Meat stock. But another reason is the product itself. By any reasonable definition, the company’s imitation meat is an ultra-processed food. Its flagship Beyond Burger has nearly 20 ingredients, some of which are themselves heavily processed and not found in supermarkets or in people’s kitchens.

This doesn’t mean that people won’t buy this stuff, but it does mean that any claim that the products are healthier than what they’re trying to replace is dubious. Beyond Meat is a story stock, and the story just isn’t very compelling.

Competition is also a problem. Already, Tyson Foods has announced a line of plant-based products set to launch this summer under its new Raised & Rooted brand. Initial products will include plant-based nuggets and burger patties made from both real beef and plant-based ingredients. Nestle is also planning to launch its plant-based Awesome Burger this fall in the U.S.

Even if the absolute best-case scenario plays out for the plant-based protein industry, Beyond Meat’s valuation is…

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