Shares of Coffee Giant Starbucks Look Appealing After 5-Year Lull

With shares of Starbucks (SBUX) trading around 2019 levels (low 90’s) despite sales and free cash flow that are running well above pre-pandemic levels, I am getting close to boosting my firm’s exposure for my clients. With both a P/E and a P/FCF multiple in the mid 20’s, SBUX fetches a price at the low end of historical valuation ranges despite a competitive position that remains as strong as ever today.

5 Year Price Chart of Starbucks SBUX Stock (2/5/24)

The recent stock price weakness can be linked to negative press (a small but growing subset of stores whose workers believe unionizing is the answer to their prayers), as well as ever-rising retail pricing driven by underlying inflation that threatens to reduce consumer visits.

The first concern seems quite manageable given the overall size of the company. A few hundred unionized stores out of nearly 20,000 total in North America will hardly bite the company’s income statement. I believe the union momentum is likely slowing due to unimpressive results thus far (the two sides have yet to come to an agreement on a contract despite months and months of back and forth). The strongest evidence that disgruntled SBUX employees are simply looking for a scapegoat becomes evident when the media presses them on why they don’t simply quit and work somewhere else. After all, if SBUX treats their employees so badly relative to other chains, a mass exodus of good workers would probably be quite successful in getting SBUX executives to play ball.

Interestingly, the union hopefuls respond to such suggestions by pointing out that they can’t make as much money elsewhere and the benefits aren’t as good. This is true, of course, relative to smaller, more local coffee shops nationwide, but it blunts the impact of their pro-union arguments in almost comical fashion. Basically, SBUX is a better place to work than most other food service companies, but since they can’t get everything they want, they’re going to unionize. I suspect this flawed logic (they don’t really have any negotiating leverage) is why the vast majority of SBUX workers have not pursued a union vote and seem generally happy with their jobs.

The concern of inflation is always real, as SBUX has been forced to raise prices materially like everybody else in recent years. But for decades now the SBUX customer has generally seen the product as a relatively affordable luxury and regulars keep coming back during the ups and downs of most economic cycles. It is hard to see that trend changing now, after it withstood the Great Recession and the pandemic. As a result, the odds that SBUX continues to be a mature, dominant food service business with cash-cow characteristics for many decades to come appear quite high.

All in all, I view SBUX as a phenomenal business that currently trades near historical troughs in valuation terms (I went back about a decade to make that assessment). Don’t get me wrong - it’s far from dirt cheap, but great businesses rarely are, and buying high quality at very reasonable prices has served long-term investors very well over the long term.

Full Disclosure: Long shares of SBUX personally and for some clients, with the latter group likely to see larger purchases in the near future.

Is Cava Group the Next Chipotle Mexican Grill?

Long-time reader Zach writes in asking if Mediterranean fast casual restaurant chain and recent IPO Cava Group (CAVA) “is the next Chipotle?”

I think there are two core questions here; 1) does Mediterranean cuisine have the same mass appeal and guest frequency potential as Chipotle, and 2) can management execute a rapid growth nationwide rollout without making major mistakes (the chain plans to grow from under 300 locations to 1,000 over the next ten years).

If I were contemplating investing in CAVA (I’m not currently) I would be more concerned with #1 above, even though both are core risks. Let’s see how the stock market currently values CAVA stock, to get an idea of whether the bar is set high for its future growth potential:

Much of Chipotle’s success has been due to extraordinarily low build out costs relative to the sales volumes and unit-level margins the locations deliver. I believe CMG has the highest four-wall profit margins of any publicly traded dining company. That said, CAVA’s 26% in Q2 of this year is pretty darn solid. I would be concerned about volatility on this metric though, as the company currently projects only 23% for the full year 2023 and last year was more like 20%. Chipotle has been much less varied.

I would point out two more things when it comes to the quantitative comparisons above. First, much of CMG’s outstanding stock market performance has come from multiple expansion (2x price to sales post-IPO to more than 5x price to sales today). Conversely, CAVA stock today already fetches more than 6x sales and has only traded publicly for 2 months. The potential for similar multiple expansion simply isn’t there - which means they will have to grow units quickly and maintain volumes and margins while doing so in order to impress investors.

Secondly, notice that the market is valuing each existing CAVA location more than each Chipotle unit, despite CMG outposts earning about 20% more in profit dollars. Has CAVA earned enough trust to warrant that relative valuation? As an investor, if I could only pick one would I want own a CMG for $15M or a CAVA for $16M? Easy answer for me, personally (the former).

Another interesting point to consider is that CMG is so big and profitable that it generates a ton of free cash flow (I estimate about $1.2 billion for 2023) for management to use for stock buybacks, whereas CAVA is still burning cash because they are choosing to open new locations faster than the existing ones book profits. So at least in the near term, CMG’s share count will likely fall, while CAVA’s will likely rise - impacting future stock performance.

To get excited about investing in CAVA today I think you need to be really bullish about the concept and its ability to be successful with hundreds, if not thousands, more units across the country. Additionally, you need to feel like you are getting a low enough price that the stock’s upside potential is worth the executional risk.

My personal view is that at current prices CMG could quite possibly outperform CAVA despite it already being more than 10x larger in terms of locations opened. But even if they merely track each other, or CMG trails a bit, given the higher risk profile of a chain with fewer than 300 locations (versus one with 3,000+), I believe a risk-reward assessment still favors Chipotle. Time will tell whether that view proves prescient.

Full Disclosure: No positions in the stocks mentioned at the time of writing, but that is subject to change at any time without further notice

As of the publication date, CAVA stock was quoted at $43 with CMG at $1,860

Data sources: CMG: Q2 2023 10-Q, 2022 10-K CAVA: Q2 2023 10-Q, 2023 IPO Prospectus

Starbucks Buyback Plan Highlights Why Opportunistic Corporate Buying Is Rare

There are a lot of mixed feelings about corporate stock buybacks depending on which group of stakeholders one polls, but one thing is clear; finding instances when management teams choose to buy mostly when their stocks are temporarily and unfairly depressed is a difficult task. When times are good (and share prices reflect this sentiment), buybacks seem like an easy capital allocation decision for ever-optimistic CEOs and CFOs. When the tide turns cash is conserved and debt repayment takes precedent even as the stock price tanks to attractive levels.

Coffee giant Starbucks (SBUX) is the latest example. With union pressure coming at them in full force, the company suspended buybacks in early April so they could improve operations and employee morale without taking a political hit from returning more cash to shareholders. This week they announced they will resume buybacks in about a year, after their turnaround plan is largely completed. You can probably guess what happened to the stock price during the last five months:

See that wonderful chance for the company to retire shares in the 70’s while sentiment about their relations with employees was at its absolute worst? Yeah, sorry everyone, buybacks were suspended. Yikes.

So if we can’t rely on management to repurchase shares at the best prices, should we swear off the notion that buybacks are shareholder-friendly? A lot of people take that view, but I don’t think it’s entirely fair. Buybacks remain a way to return capital to investors in a tax-efficient manner. Dividend payments force investors to sell a portion of their investment and often results in a tax liability. If you own stock it is safe to assume you want to keep it so forcing a partial sale every three months is not ideal. If you want to sell some, you can do so on your own, and in today’s world for zero commission.

As an investor, it is probably best to think of stock buybacks as equivalent to a tax-free dividend reinvestment program. Your capital stays invested and taxes are avoided, which leaves you and you alone to determine the timing and magnitude of any position trimming. The dividend analogy also rings true because just as dividend payments are executed every quarter no matter the price of the stock, so too are most buyback programs (unfortunately).

All in all, buybacks are probably here to stay even with the new 1% federal tax that begins next year. While I prefer them to dividends (for growth companies especially), it is still pretty annoying when companies don’t match their buyback patterns with the underlying stock price volatility. When a cash cow business like Starbucks adopts the same shortcomings, it’s a good reminder that they are the rule more than the exception.

Full Disclosure: Long shares of SBUX at the time of writing but positions may change at any time

Olo IPO Highlights Direct vs Third Party Online Food Ordering Competitive Dynamics

There are a lot of bullish opinions on the long-term prospects for third party delivery apps like DoorDash (DASH) and Uber’s (UBER) food delivery segment. When thinking about their business models, the stumbling block for me has always been the fact that they take 15-30% of the order value for themselves (which in many cases is most or all of the restaurant’s profit on the order) and they have to supply the labor as well, which presents headwinds like rising minimum wages and the debate over whether their drivers can be contractors or must be classified as employees.

The end result is a tough hill to climb to profitability (during a pandemic year in 2020, when the business should have crushed it, DoorDash brought in nearly $3 billion of revenue but lost more than $300 million). Even if they expand successfully to serve traditional non-food retailers too, the same issues apply.

Looking at it from the outside, it seems to me the better bet would have been to build the technology platform and simply sell it to the restaurants. You wind up with a high margin software as a service business that would get a huge valuation on Wall Street, and you let the restaurants hire their own drivers to fulfill the orders that come in. Fewer parties involved directly in the order makes it more efficient and allows restaurants of all sizes to compete with the likes of the big pizza delivery chains, who have a head start with a driver network and online ordering technology.

Interestingly, this is the path that Olo (OLO) has taken and the software provider will go public today at a $25 per share offer price. The stock has yet to open, so I can’t comment on valuation, but I am interested to dig into the company more because I far prefer their business model (charge a monthly service fee per location plus a small transaction fee per order that declines as volumes grow) to one that literally makes you a middleman between the customer and the food.

It will probably not be a winner take all situation. Large restaurant chains with huge order volumes will be able to negotiate better with the likes of DASH to reduce fees and make delivery orders marginally profitable. But smaller independent chains likely can’t do the same, and could very well prefer a scalable software solution where they control the customer experience directly (maybe emphasizing carry out more than delivery) and don’t have to give up all of their margin to stay relevant in the marketplace.

As a value-oriented investor, I hope Wall Street discounts the Olo model and affords it a reasonable valuation, as they are a leader on the software side and their model seems to make a lot of sense if you want to be profitable in the online ordering food space. Time to dig into their financials and see where the stock trades in the early going.

DoorDash IPO Highlights Relative Value of Uber Shares

With the DoorDash (DASH) IPO having gone far better than anyone thought, making the stock untouchable at this point from my vantage point, the real takeaway for me is how cheap Uber Technologies (UBER) stock appears on a relative basis. According to Uber management, they expect margins in the rides business to be 50% above that of the food delivery business. This is undoubtedly due to the restaurant being the middleman for Uber Eats, with no third party involved in the legacy Uber rides division. With that in mind, consider the data below when valuing DASH and UBER, with the latter only operating in the food delivery space:

Uber 2019 “Rides” Revenue: $10.9 billion

Uber 2020 “Eats” Revenue (1/1-9/30): $2.5 billion

Current UBER equity market value at $53/share: $93 billion

DoorDash 2020 Revenue (1/1-9/30): $1.9 billion

Current DASH equity market value at $158/share: $62 billion

Based on the current business mix of both companies, how should Uber be valued relative to DASH? Is ~50% more a reasonable amount? Something to think about for sure.

Full Disclosure: Long shares of Uber at the time of writing, but positions may change at any time

Airbnb and Doordash: So Much For A More Efficient IPO Pricing Process

This week was supposed to be a coming out party for a new IPO pricing process dubbed the "hybrid auction.” Newly public companies have long complained that large first day gains for their stocks enriched institutional investors with immediate profits, with no corresponding benefit to the listing firms. Given that an IPO is often desired to raise additional growth capital, being forced to “leave money on the table” is a big disservice to these young firms.

Inefficient IPO pricing is not surprising given the actors involved. Companies are advised by investment banking firms, whose job it is to allocate stock to their large institutional clients. The incentive, then, is to keep your clients happy and instantaneous profits on day one certainly accomplishes that. While a higher IPO price would give the banks a bigger take on the total deal value, a company can only go public once. The ongoing long-term relationships the banks have with their buy side clients are far more profitable and important. As a result, the banks have little reason to price IPOs as close to market demand as possible. It is a simple conflict of interest situation.

This new “hybrid auction” idea was supposed to help with this problem. Rather than picking a price and then taking orders from investors, the new model does set an initial price indication, but it asks would-be buyers to not only submit how many shares they want to buy, but also allows them to offer the price they are willing to pay. The idea is to get a better gauge of demand by seeing just how high buyers will offer if they think a higher bid will increase their odds of getting stock.

Perhaps you can see the problem already. A buyer of an IPO wants to get the lowest price possible to maximize their potential profit. By giving buyers input into the price they end up paying, they have an incentive to keep the price low, without being insulting or risking missing out to other buyers. So, the most likely outcome is that buyers submit strong bids, maybe even a bit higher than the indicated price range, but without getting too aggressive. Therefore, the real demand is never determined, because you would be crazy to bid anywhere near the highest possible price you are willing to pay.

The results this week were therefore quite predictable (huge first day price spikes) but I think the end result was even worse than most would have guessed. DoorDash (DASH) priced at $102 and opened at $182 (+78%). The Airbnb (ABNB) deal was even worse, with an opening trade of $146, a stunning 115% above the $68 IPO price.

So what is the solution? Well, Google (GOOG) had the right idea back in 2004 when it opted for a dutch auction for its IPO. The company saw a first day price increase of just 18% because it decided to actually sell its stock to the highest bidder (what a novel concept!). A dutch auction simply sells the available stock at the highest price possible. Potential buyers submit a max buy price and a desired quantity and the IPO price is set to be the highest price such that there is a bid for every share being sold. For some odd reason, companies have not copied the Google approach. Until they do, they stand to keep leaving a ton of money on the table with nobody else to blame but themselves.

One innovation is worth mentioning as having been successful and that is the “direct listing.” Many private companies are profitable and don’t necessarily need to raise additional growth capital via an IPO. However, they still might want to be a public company in order to provide their shareholders and employees liquidity and also have a currency with which to make acquisitions. In a direct listing, the existing shares outstanding simply begin trading on the stock exchange, which opens them up to everyone. The market price is immediately known and there is no “first day pop” because no actual IPO price needs to be settled on (no new stock is being sold, so no price for a sale is needed).

The only possible downside for a direct listing is that all of the shares are dumped on the market at the same time and so it could be met with a large wave of selling early on. While not indicative of any problem at the firm, optics are important and a falling stock price will always raise questions. The solution, however, is quite simple. A rolling lock-up expiration - say, 10% of the stock each month for 10 months - would require holders to sell slowly over time to cash out, and therefore would have a minimal impact on the stock price.

So here we sit and Airbnb and DoorDash have two problems; 1) they left billions on the table, and 2) their stock prices are so high that it will be harder for them to attain the financial expectations that are embedded in the current price. Both of those are detriments to the very people they were trying to help with the IPO (their shareholders).

No Wonder $350B of Small Business Aid Dried Up So Fast: Public Companies Are Getting Huge Loans

Initially it seemed like a great step forward when Congress approved $350B of small business aid through the paycheck protection program (PPP). Use the funds for employee wages, rent, utilities, etc and the loan is forgiven. For small businesses, it seemed like one of the few times the federal government puts the little guy first. Well, so much for that.

We are now getting reports that publicly traded restaurant chains are getting PPP loans. Shake Shack (SHAK) and Potbelly (PBPB) got $10M each. Ruth’s Chris (RUTH) got $20M. No wonder the money ran out so fast, leaving actual “small” business owners out to dry.

Sure, large restaurant chains will use the money for wages and rent, but that’s not the point. It is about giving the money to businesses who actually need it to survive. Shake Shack just announced that after tapping their credit line, they have $112M in the bank as of April 16th. On top of that they plan to sell additional shares of stock to raise up to $75M. As if $177M would not be enough to keep them going (the company estimates they are burning through $1.4M per week, so they would have more than 2 years of cash on hand post-equity offering), let’s give them another $10M of taxpayer funds.

How many mom and pop restaurants could split that $10M? At $50,000 each, that’s 200 restaurants that are likely close to bankruptcy. Unless Congress approves more money and literally approves every loan application that is legitimately submitted, the idea that public companies can drain a small business aid package is a disgrace.

GrubHub Merger Logical Bridge To Food Delivery Consolidation

Press reports this week indicating that online food delivery operation GrubHub (GRUB) was exploring strategic alternatives, including a possible sale or merger, jump-started the stock but now the company is refuting the sale process part of the equation. Regardless of which route they prefer, this sector is in dire need of a structural realignment and I suspect we will see that transpire this year.

For the food delivery companies, the business model is just really, really difficult. There is no way that a restaurant and a third party delivery service can both make reasonably good margins if I want a burger, fries, and shake delivered to my house in an hour or less. GRUB does a lot of business in high density urban areas like New York, where delivery routes are more efficient than in the suburbs, but still the company barely makes any money. EBITDA per order between 2014 and 2018 averaged anywhere from $1.01 to $1.18 depending on the year. Imagine the volume you must do to build that into anything worthwhile. No wonder investors have soured on the stock:

It's just as bad for consumers trying to navigate the ordering process with so many competitors popping up to embrace this horrible business model. Here in Seattle, my wife and I have food delivered relatively frequently and in a big city like this we have DoorDash, GrubHub, Postmates, and Uber Eats to choose from (we had Bite Squad at one point too, before they were absorbed by Waitr and left our local market). It is a huge pain to scroll through 4 apps to figure out what restaurant you want, the fee structures between them differ, and places switch from one service to another all the time. There just isn't room for more than 1 or 2 players in this space, assuming they can figure out how to make it work financially.

So what should GrubHub do now, as the first mover and only pure play public company that is getting pounded by the newer entrants? David Faber on CNBC this morning nailed the answer to this question; they should merge with Uber Eats.

Uber is bleeding cash but the ride sharing business is actually profitable in mature markets, whereas the food delivery business is losing a few bucks on every order. If you merge Uber Eats into GrubHub you have a stronger, clear #1 player in the space that remains a public company and can try and figure this business out. It would probably force further consolidation (why not have Postmates and DoorDash merge instead of both pursue an IPO?) which benefits everyone.

And it does something else (which for those of us who recently bottom-fished Uber because it looks like a cheap stock would be wonderful) by ridding Uber of the cash-sucking food delivery division. Uber shareholders would get stock in the newly formed GrubHub/Uber Eats company and Uber stock itself would likely rise materially as they easily push up their profitability timetable by a year or more. It just makes sense to separate these two business models, as one is likely to be very profitable at scale (ride sharing) and one is far more uncertain (food delivery).

Uber stock has already rallied from the sub-$28 price I jumped in, so maybe I am getting a little greedy, but a deal like this probably sends the stock into the 40's and perhaps to the IPO price of $45. And it just makes sense from a business and financial perspective. Hopefully the executives and bankers were watching CNBC this morning and realize how great of an idea Mr. Faber shared on the air.

Are Money-Losing Companies Ever Worthy of Value-Oriented Investors' Time?

As a valuation-based contrarian investor, it is relatively easy for me to make a strong case against allocating investment dollars to money-losing tech IPOs that pay out stock compensation equal to 20% or 30% of revenue to boost their "adjusted EBITDA" and GAAP free cash flow metrics and trade for 15 or 20 times that revenue. Simply put, the growth required for a company to "grow into" a 20 times revenue multiple, or a 100 P/E multiple, is so enormous that 90%+ of all businesses will never get there.

Of course, there are some that will and investing in those stocks can be very rewarding. Josh Brown, CEO of Ritholtz Wealth Management and frequent CNBC commentator, is quick to point out to television viewers that he is generally opposed to avoiding unique growth stocks solely due to valuation concerns. He walks the walk too, considering his purchase of shares in Shake Shack (SHAK), a regular ol' restaurant chain currently trading at more than 6 times 2019 revenue and more than 50 times 2019 EBITDA.

Shares of Shake Shack surged out of the gate after an IPO in 2015 at $21 but insane valuation levels could not sustain the 4-fold rise for very long. After a period of consolidation, the valuation is once again getting frothy as the stock regains its former highs.

Just because I don't think SHAK is worth its current valuation, even if it does reach its goal of over 400 domestic locations (vs ~150 today) and tons of franchised units overseas, I could be wrong. If the company becomes the second coming of McDonalds (MCD) 20 years from now, Josh will be right and we will all look back and say the $3.6 billion equity valuation in 2019 was a great entry point! So... if you feel that strongly about a company, and there is enough market opportunity for them to ultimately grow 5x or 10x bigger, a high growth investment can pay off regardless of the initial price paid.

Since I have been poking fun at folks paying 20 times sales for cash-burning, cloud-based software companies, I wanted to be transparent with my readers about the client portfolios I manage. Believe it or not, there is one high growth, money-losing stock that I have parked in some client portfolios; Teladoc (TDOC).

TDOC is the global leader in the relatively nascent telemedicine provider space. Just as technological innovation is disrupting many traditional sectors of the economy, TDOC is trying to make it commonplace for patients to access medical care via teleconferencing technology. Imagine how many visits to doctor offices do not actually require in-person consultation. Accessing medical providers remotely is not only more convenient for the patient, but it can reduce costs across the system.

Clearly the telemedicine trend has yet to take off globally, as it is very early on in being rolled out. It is gaining a lot of traction in certain subspecialities, such as behavioral and mental health, and I believe it could be very common a decade from now. TDOC has established itself as the leader, and with equity currency from the firm's 2015 IPO, they have the ability to use M&A to further their position worldwide.

All of that said, you may have guessed that TDOC is losing money. Like many tech firms I scoff at, they are content to operate at a loss to build their leadership position and hopefully dominate the market over the very long term. In terms of growth, so far they are succeeding. TDOC's annual revenue has gone from $20 million in 2013 to what should be well north of $500 million in 2019. Such growth explains the generous valuation implied by the current $58 per share stock price; an equity value over $4 billion and price-to-sales ratio of 6x on 2020 estimates ($675 million). My internal estimates show EBITDA in 2019 to the tune of negative $40 million.

To conclude, I think Josh Brown is right - sometimes valuation does not matter for growth stocks. That said, when dozens of businesses are trading at crazy prices relative to underlying sales and earnings, we should assume that most of those won't work out for long-term investors if they overpay. I would have to be pretty confident that the upside potential is worth the risk. And in the case of TDOC, I can envision a scenario where telehealth is huge and TDOC dominates the field, but time will tell if they are the right horse to bet on.

While Publicly Traded Plant-Based Meat Alternative Companies Are New, The Products Are Not

First, there was cannabis seller Tilray (TLRY), which saw its stock price peak at $300 per share just a few months after a mid-2018 IPO that priced at $17. A buying frenzy among individual/retail investors resulted in a more than 17-fold surge, but as it usually the case, sanity returned. Today TLRY can be purchased in the 40's.

This chart does not show the intra-day high of $300 but it did indeed peak at that price

With the cannabis craze now passed, as well as that of bitcoin, which stole the show in 2017, we have another round of exuberance with Beyond Meat (BYND), the plant-based meat alternative seller which priced its IPO at $25 last month and this week topped $200 per share.

While I lacked helpful fundamental insights into TLRY, outside of the always important valuation discussion, the "alt-meat" sector is something I know a little about because my wife is a vegetarian and we typically have very little in the way of actual meat products in our house. As a result, over the last decade or so we have tried most of the products out there. Some impress, others do not.

What I find perhaps most interesting about the last month is that because BYND is the first pure play plant-based meat alternative company to go public, those who follow the financial markets (but don't eat the products), seem to think that this market is brand new and that BYND (and fellow upstart Impossible Foods) are the first two companies to launch plant-based meat products. If there was indeed some sort of first-mover advantage, and the market for these items was brand new and growing like crazy, I guess one could justify paying a huge valuation for BYND. Though I think the current $10 billion equity value is beyond rich for even such a scenario.

The problem with that viewpoint is that plant-based burgers, ground beef, and chicken nugget alternatives are not new. Brands like Morningstar Farms, Quorn, Lightlife, Gardenburger, Boca, Field Roast, and Gardein have been at this game for a long time. In fact, market leader Morningstar Farms (owned by Kellogg), with annual sales estimated at $750 million, was started all the way back in 1975!

I suspect that people are noticing them more today because both Beyond and Impossible have been aggressively marketing their products and have succeeded in getting them on restaurant menus over the last couple of years (the legacy brands have typically focused on grocery store distribution). Sure, there are more vegetarians and vegans today than there were 20 or 30 years ago, but it would be a mistake for investors to assume that a couple of new companies are going to dominate the market and have no competition.

The market size is also an interesting topic, because in 2017 only 3% of Americans identified as vegan or vegetarian. If 5 companies battle each other for maybe ultimately 5% of the meat market in the U.S., it might be hard for investors to justify anywhere near a $10 billion market value for BYND, let alone a handful of players combined.

Some people are saying that meat eaters will eventually become big customers, but I doubt that will be true. Surely there will be some, as I enjoy many of the items with my wife (even though I do eat meat, poultry, and fish at restaurants), but I don't think specific situations like ours will be all that common, even five years from now.

So while these products are real, in many cases quite tasty, and the businesses are growing, the stock valuations are clearly out of whack. There is no way BYND is worth $10 billion when Kellogg's equity is valued at $19 billion and Conagra (the owner of Gardein) is worth $14 billion. Those companies have total annual revenue of $13 billion and $10 billion, respectively, while Beyond is projected to book sales of $300 million in 2020.

Much like cryptocurrencies and cannabis, many investors seem to be overestimating the alt-meat market opportunity (through insane stock market valuations). This is not to say there won't be winners and profits won't be made, but in a rush to want to own shares of what could be the "next big thing" valuation gets thrown out the window in favor of momentum and excitement. That typically does not end well. After all, the saying "buy low, sell high" was never shortly replaced by "buy high, sell higher" mainly because that strategy rarely works over the long term. Tilray speculators learned that and I suspect BYND bulls will as well.

Lastly, if you are curious and want to try some of the legacy alt-meat products (and compare them with BYND to see if they really have a better mouse trap), here are our favorites: