I believe Beyond Meat is soaring because there are simply no other publicly traded companies that have much appeal to vegans. Supply and demand has bid up the price.
To understand why I won’t invest in Beyond Meat, it is important to first understand the four investment quadrants. If you look at the chart below, you can see why I strongly recommend avoiding “high risk, low return” investments, and suggest that all investors select from the other three quadrants depending on their goals for each segment of their portfolio.
At this point, for vegans to buy stock in Beyond Meat seems to me to be primarily for sentimental reasons or FOMO (fear of missing out – almost never a good investment criteria!). But with hundreds of other vegan investment opportunities available that can help grow the overall vegan economy, and at potentially much higher financial returns, why would vegans want to take on so much financial risk with Beyond Meat just to feel better about their portfolio?
Early stage investors in Beyond Meat bought into a “high risk, high return” opportunity. That opportunity is now gone forever for Beyond Meat, but still available for the steadily increasing number of vegan startups raising capital today.
If you want to invest in Beyond Meat now because it feels good to own something that expresses your vegan ethics, by all means go ahead, but don’t expect to get rich doing so. At this point, I would call Beyond Meat a “high risk, low return” investment opportunity because the risk of losing a large chunk of your current investment has to be weighed against what will at best be modest, long-term, market rate gains. This is because the public stock market is a low return investment category by default, compared to other types investing. Given that Beyond Meat is not a mature company, you can anticipate large swings in their stock price like what Tesla investors have seen.
If you look at Google, a longterm strong earning company, you’ll see that if you bought shares on day 1 of public trading, you’d only have made 25% annual return if you held through this year. Their percentage stock price growth was highest at the beginning and has slowed year by year as the risks have reduced. Now that Google has matured a lot, it has the characteristics of a “low risk, low return” investment. The larger a company gets, the more difficult it becomes to earn high percentage gains.
25% a year might sound good to average investors who are typically presented with only “low return” options such as the S&P 500 index which consistently nets less than 7% per year, but keep reading to see why even 25% per year is “low return” too compared to other asset classes.
If Google is a good benchmark for longterm ROI percentages in a public stock, and given the likely risk of wide valuation swings for Beyond Meat, I would rather put my vegan investment dollars to work where it makes the biggest difference for the future of veganism: providing seed capital to the first rounds of the next generation of vegan businesses.
This is also where your money can make an excellent profit – if things go well. With so many vegan businesses today scrambling to raise their first rounds of capital, you should not feel obliged to purchase stock in Beyond Meat simply for lack of other ethical investment options.
To begin to grasp what is possible in early stage investing in general, the chart below shows that investors in Uber’s first valued round have earned 200% annual returns to reap a 20,000 fold gain over 9 years as the company’s valuation skyrocketed from $4 million to $80 billion today.
Presuming a similar $4 million Series A (a fairly common number for tech startups), at Beyond Meat’s current $10 billion valuation, Series A investors have earned about 140% annually return during a similar timeframe as Uber’s investors. Not quite the staggering gains made by Uber Series A investors, but still enough to turn a $10,000 seed investment into $25 million worth of Beyond Meat shares.
Compare this to Google’s annual percentage growth rate of 25% from IPO, or the less than 7% annual return typically made by investors in the S&P 500 index. Truly, most if not all IPO’s mark the end of the high percentage growth phase and the transition to a mature company. Yes, transforming the meat industry is a $1 trillion opportunity, but with so many well funded players entering the field, eventually the animal meat substitute industry will face exceptional pressure on profits from commodification.
Even if Beyond Meat eventually hits a $1 trillion valuation (like Apple did for a while), that’s only a 100-fold increase from today’s valuation, compared to the 2500-fold valuation increase I estimated for the company’s Series A investors over the past 9 years.
Of course, the risk of losing 100% of an early round investment in Uber and Beyond Meat was very high back then, and investors from that era have been waiting nearly 10 years to for the chance convert their holdings into cash. This is why I categorize investing in startups as “high risk, high return”.
By now you are beginning to understand the basic pattern of steady valuation increases from seed stage to IPO in most any successful growth company. This is a central characteristic of capitalism itself. All companies on the public markets produced similar valuation growth curves before their IPO’s.
I’m not singling out Beyond Meat as low growth. ALL publicly traded companies are low growth!
Knowing this, if you still want to hold their stock long term for wealth preservation purposes, I would recommend reducing the “high risk” aspect by using “dollar cost averaging” to smooth out what will almost certainly be a wild ride.
In contrast to investing in the public stock markets, Vegan Launch provides investors of all economic levels access to “high risk, high return” early stage vegan companies. Early stage investing is a lot of fun, holds potential for exceptional gains (and total losses!) by design, and allows you to invest with your vegan values and ethics today instead of waiting for IPO’s.
Will all early stage vegan investments grow like Uber or Beyond Meat? No. Many will go bust altogether, and some will survive but not grow into economic leaders. A few may become global brands. This range of outcomes it what makes early stage investing high risk. To help moderate this risk, we urge our members to only invest as much money as they would feel comfortable losing entirely, and focus on diversification rather than betting everything on one company.