A sharp economic downturn, such as the one caused by the Corona crisis, usually also causes the stock market to take a close look at previously hyped stocks – and many bubbles burst. However, the “bubble candidates” Beyond Meat and Peloton are currently not going down but steeply up.
- The hype shares of Peloton and Beyond Meat rise sharply in Corona crisis
- Beyond Meat could benefit from meat supply shortages
- Business of fitness equipment manufacturer Peloton booms thanks to Stay-at-Home
The corona crash caused share prices worldwide to plunge sharply in the first quarter. The shares of vegetable protein producer Beyond Meat and fitness equipment manufacturer Peloton also fell sharply in March. However, instead of a long overdue correction, as some market experts probably expected for these two quite hyped stocks according to “CNBC”, the shares rebounded strongly. Peloton shares have gained around 59 percent since the beginning of the year, while Beyond Meat has so far risen by around 78 percent. According to “CNBC” they are thus among the biggest winners of the Corona crisis.
A lot of fantasy for Beyond Meat and peloton shares
Not surprisingly, some market participants probably regarded the two titles as bubbles. Beyond Meat’s share price had already risen to astronomical heights in the summer of last year – driven by high expectations that were not fulfilled. The subsequent fall was correspondingly deep. A similar price movement was also seen at the beginning of this year, when hopes of a deal with McDonald’s drove stocks upwards. The fast-food giant tested burgers with vegan meatballs from Beyond Meat in some branches in Canada earlier this year. Investors then hoped for a large-scale cooperation between Beyond Meat and McDonald’s in Canada and the USA. However, the business is still not in the bag.
Even the newcomer Peloton, which offers fitness equipment for the home and the appropriate online courses for it, is not difficult to believe in pure hype, especially in view of the IPO last September. Although the company placed its shares at the upper end of the price range at $29, taking in more than $1 billion at the time of the IPO, the stock had to give up a lot of ground on the first day of trading. It is possible that peloton would have turned out to be hype – if the Corona crisis had not created a real demand for the company’s products.
Corona crisis increases relevance of former hype products
Matthew Maley, chief market strategist for asset manager Miller Tabak, explained to CNBC why the shares of Peloton and Beyond Meat were able to recover quite quickly from their temporary slump and have become more attractive to investors right now. “As soon as investors saw that the Fed was providing a safety net, they came back into the market, but they still wanted to weight their investments in favour of those stocks that would actually benefit from the lockdown,” Maley said. And those stocks include Beyond Meat and Peloton.
Beyond Meat has had several successes in the Corona crisis. Firstly, the producer of plant-based meat alternatives entered the Chinese market through a cooperation with Starbucks, and secondly, the demand for meat alternatives based on plant proteins also increased – and not only in Asia, as the quarterly figures of Beyond Meat show. The US company doubled its sales in the first quarter and was surprisingly in the black. In response to the balance sheet alone, the Beyond Meat share jumped by around 25 percent.
Many people are apparently rethinking their meat consumption as a result of the Corona crisis. There are several reasons for this: For example, there is a possible connection between the consumption of wild animal meat and the initial transmission of the corona virus to humans. However, the price and availability of normal meat may also play a role. In the USA, numerous meat processing plants have been closed down following the increased incidence of coronavirus infections. This is also having an impact on the end consumer in the supermarket in the form of reduced supply and higher prices – and represents a special opportunity for Beyond Meat. “We see this as a huge opportunity for us to kick off samples and attract consumers to our segment,” CEO Ethan Brown told CNBC. To achieve this, Beyond Meat is looking to use discounts and value packs to encourage consumers to choose meat alternatives over animal products as the barbecue season gets underway.
The fitness equipment manufacturer Peloton also benefits from the Stay-at-Home rule. While many people continue to spend as much time as possible at home, even with the current relaxation measures, and fitness centres are still largely closed, the company brings the atmosphere of fitness centres home with its equipment and the associated range of courses. In addition to a spinning bike and a treadmill for home use, Peloton also offers a wide range of courses in the subscription model, which can be streamed directly on the screen of the machines. Via an app, courses for people are also offered,
who don’t have any of the thousands of dollars worth of equipment at home. This service is obviously in demand during the Corona crisis, as Peloton recently announced that Ande April set a new record with 23,000 participants in one of the live courses. The increased demand is also reflected in the balance sheet. In the third quarter (ending March 31) of the current fiscal year, sales grew by 66 percent to $524.6 million. However, the company is not yet making profits.
Analysts especially confident for Peloton
Despite all the successes, however, the peloton in particular is also feeling the negative effects of the crisis. According to “CNBC”, the company had to close its sales branches with integrated fitness studios and can currently only supply the spinning bike to customers. The sale of the otherwise also available treadmill has been stopped for the time being, as customers cannot assemble it on their own. Normally both devices are installed by a Peloton employee directly on site. The live courses also had to be temporarily suspended until the trainers were able to stream from home.
However, analysts still believe that the shutdown will prove to be a stroke of luck for Peloton and that the company will emerge from the Corona crisis in a much stronger position. “[Peloton] will come out of this thing as a much stronger company with greater demand,” Wedbush analyst James Hardiman told CNBC. He is counting on customers who have now bought one of Peloton’s expensive spinning bikes not to return to conventional gyms after the Corona shutdown, but rather to continue spending their money on the company’s online courses. “This is not a temporary uptick in demand. It will have a lasting effect,” says Hardiman.
However, Matthew Maley of Miller Tabak warned against expecting too much from the peloton’s shares at the moment. The title may already be overbought again, the market strategist told CNBC. In fact, according to data from the US news channel, the peloton’s current trading volume is much higher than usual. While normally only 8.6 million peloton shares are traded per day on average, the number of shares traded recently exceeded 30 million at times. Investors should therefore remain cautious.
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