It Matters What You Pay: Where are the Wall St. Darlings Now?

It’s a good time to check in with some Wall Street darlings of the last few years. We found ourselves saying “no” to these stocks repeatedly, as they were retail investor favorites, reminding us of the late 1990s. Back then, dot-com stocks were all the rage and it didn’t matter what the company did, or how much it earned: somehow just the bravery of putting forth an unproven business idea was enough to get you capital. That’s not good enough for our portfolios. Companies need to be around for ten years or so, or be part of another company that’s been around for ten years or so, and making money is a must. We do not sign up for poor profit/loss ratios.

Today we’re going to check in with Beyond Meat and Carvana. Beyond Meat is a plant-based meat company that created sausages, burgers, and other meat-type foods from plant protein, flavorings, and additives. Several things have conspired against BYND. The first is the taste. Turns out, beef burger eaters are not so keen on pea protein. Second, the process of making plant foods is expensive. That makes the final product expensive – in some cases more so than chicken or beef. Third, BYND has a heavy-weight competitor called Impossible Foods that elected to remain private. It has more operating leeway and reduced prices across the board at one point, putting BYND at a disadvantage. Then, of course, BYND borrowed a ton of money. Debt is not a good thing when sales fall off.

The high price on this chart is $234. The current price is $13.28. That’s quite a fall from grace.

Carvana sells cars via an online platform that arranges for the customer to view the car, ask questions, make offers, buy insurance, finance the car, and have it delivered to his home. A kitschy part of the package is Carvana’s ‘vending machine’ that allows for on-the-spot pickup after a trial. Carvana has never made a profit and losses are taking a turn for the worst as expenses have skyrocketed.

The high price on this chart is $361. The current price is $7.06. This represents an historically horrific destruction of capital.

It is possible that neither of these companies will survive. Others are in the same boat, including several electric vehicle makers. For shareholders, the lesson is – it matters what you pay. For business owners, one lesson among many is – it matters what you spend.