Trendy new initial public offerings always rock the boat for a variety of reasons. A hyped-up IPO like Beyond Meat (BYND) or Uber Technologies (UBER) is likely to show sudden jumps or dips in share price because it simply hasn't been trading long enough to develop the long-term trends that smooth out short-term blips.
For investors, it all means that these companies offer greater opportunity for faster returns. We'll dip into TipRanks' database to look at three such stocks, all of which went public in the last few months: Beyond Meat, Lyft (LYFT) and Uber. We'll see where they are now, and what factors lie behind their volatile share prices.
Several companies in recent months have put on the market a new generation of meatless burger products, offering a better simulacrum of a burger but more importantly, better taste. Beyond Meat is one of these. The company went public on May 2, listed on Nasdaq for $25, more than doubled in its first trading day, and has shown steady gains since, reaching $168 on June 10.
Then the bottom fell out because JPMorgan analyst Ken Goldman noted that the stock was trading far above its price target. He downgraded his rating to hold. He simply felt BYND was overpriced, and the time had come to stop buying.
"[We felt] stock's valuation would at some point properly reflect its extraordinary revenue and profit potential. We think this day as arrived." Goldman gave BYND a $121 price target, indicating a possible downside of 20%, to go along with his hold rating.
Contributing to the roller coaster was news from competitors Impossible Foods and Tyson Foods (TSN - Get Report) . Impossible Foods reported difficulty meeting demand, while Tyson announced a directly competing hybrid product. Robert Moskow, of Credit Suisse, believes that BYND can meet that challenge, describing its products as "more revolutionary and broader" than Tyson's. He takes a wait-and-see attitude, however, with a hold rating and a $125 price target.
Overall, BYND gets a unanimous analyst consensus, with eight hold ratings. The average price target is $108, 33% below the current share price of $164. That share price, however, represents a gain of well more than 500% since the IPO, meaning investors who got in early can realize a hefty gain.
The popular ride-share company and competitor to Uber hasn't had as good a time as BYND in the markets. LYFT shares are down 23% since the IPO, despite generally good ratings from Wall Street's analyst corps.
In a detailed research note, Youssef Squali of SunTrust said, "The advancing set of consumer preferences, along with ubiquity of mobile devices, is translating into a sustainable growth path for Lyft for years to come, adding that the company should turn profitable and makes a compelling pure play in the North America TaaS segment." He gave the stock a buy rating with a $68 price target indicative of a 9% upside.
Mark Mahaney, from RBC Capital, is more bullish than Squali. In initiating his coverage of LYFT shares at buy, he gave a $72 price target and 15% upside. Supporting his thesis, he said, "Lyft is a strong No. 2 player in the growing U.S. ride-sharing industry, with industry-leading growth rates. And we believe that Lyft has a reasonable path to profitability in the coming years."
For the short term, LYFT is selling at $60, making it an affordable option. With the most recent analyst ratings suggesting price targets back at the original IPO values, it's likely that the collective market wisdom sees the stock's March-May drop as having gone too far. One cautionary note, however: trading volumes for LYFT have been low since May 17, only a few million shares per day. Low volumes tend to increase market volatility.
For now, at least, LYFT gets a moderate buy rating from the analyst consensus, based on 19 buys, eight holds, and three sells given in the past three months. Shares are trading at $60 at this writing, so the average price target of $70 yields an upside potential of 15%.
With four times the market cap of Lyft, Uber is the leader in online ride-sharing. But Uber shares dropped more than 10% in their first day of trading, made it up by day four, and have been up and down ever since. Patient investors should do fine, however, as Uber is up 4% from the IPO, and like Lyft has been receiving positive ratings from the analysts.
Writing from JMP Securities, Ronald Josey noted the company's recent executive restructuring. "In the streamlined organizational structure CEO Dara Khosrowshahi will be taking a more active operational role, and we think the new structure should be an overall positive." Josey set a $54 price target, for an upside of 24%, on Uber stock.
RBC's Mahaney was even more optimistic about Uber. His price target, $62, suggests an impressive upside of 42%. He wrote of the stock, "Uber is the leading global player in massive ride-sharing & meal delivery TAMs, generating robust growth, with leading technologies, products & ops. We also see significant option value in new business units (e.g. Freight). We believe the market underappreciates Uber's profit potential."
Overall, Uber has a strong buy analyst consensus, with 21 buy and 5 hold ratings. The stock has a share price of $43 and an average price target of $54, indicating an upside potential of 25%.
Sorting It Out
The biggest difference between these three companies lies in market share and profitability. Beyond Meat already dominates its market and is turning a profit, but its industry is highly competitive and it will be hard-pressed to maintain its position. Uber and Lyft are fighting over market share and both are running losses now, but their industry offers higher potential profits. The result, for these newcomers to the stock market, is unpredictable share prices.