By Jake Sheckter, Business Editor
Each month’s edition of the YU Observer will include a “3-Stock Highlight” on a few stocks that have been in the news lately, have fascinating stories, or provide for an interesting read. On behalf of the YU Observer, we’d like to remind everyone that these stock picks are for educational purposes only and are not to be taken as financial advice or used for investing any real cash. This month, for our final edition of the 2021-2022 academic year, we will be highlighting Tesla Inc. (TSLA), Shopify Inc. (SHOP), and Beyond Meat Inc. (BYND).
When Elon Musk said he would reverse Twitter’s ban on Donald Trump, the Financial Times used that as their central headline of his interview at the Future of the Car conference on May 10, 2022, but, as per usual, Tesla’s progress was the main topic of discussion. Tesla currently places its sights on selling 20 million electric vehicles a year by 2030, which is immensely higher than the expected 1.5 million this year. One of the largest uncertainties Tesla faces, according to Musk, with regards to actually reaching those milestones was problems in lithium production in a few years, due to a shortage of the equipment needed to convert lithium into factory-grade materials. But many investors are rightfully concerned that randomly buying Twitter for over $40 billion and leveraging Tesla’s stock doesn’t get us to that goal any quicker. It is surprising to some that I waited until the very last edition to highlight Tesla, but I was actually trying to wait as long as I could so that I would be able to highlight Tesla after it was struck down by the correction it deserved. Did Tesla get hit as hard as it should have (to let off some steam and adjust to a more accurate valuation)? Who knows, but it is currently down about 25% over the last month, yes, a quarter of the company’s value in 30 days. But Tesla isn’t alone in this peril as Airbnb (ABNB), PayPal (PYPL), Block Inc. (SQ), and Spotify (SPOT) are all down over 30% in the last 30 days. In fact, the NASDAQ is even down 15% over the month.
Going forward, Tesla’s batteries will continue to use lithium as a key element, and the US plans to increase the mining of this precious metal, the projections of which show demand eventually dwarfing supply. The vast majority of lithium also comes from only three or four countries. Chile has the largest known lithium reserves in the world with 8 million tons. Coming far behind, in second place is Australia with 2.7 million tons, followed by Argentina at 2 million, and lastly China with 1 million. Musk also stated that the possibility of Tesla acquiring its own mining company at some point wasn’t “out of the question.”
Tesla production in Shanghai throughout April 2022 also dropped 98% from March 2022, according to the China Passenger Car Association. This comes as a result of the EV maker grappling with China’s severe lockdown due to rising Covid infection rates.
Speaking of stocks taking devastating hits, here’s Shopify. Being one of the e-commerce leaders in the world, Shopify losing most of its value in less than 6 months is astounding, and hungry investors waiting to ‘buy the dip’ smell blood in the water. The stock is down 75% year to date (YTD). On a more positive note, however, Shopify announced the acquisition of Deliverr, a US-based e-commerce fulfillment company, for $2.1 billion. Shopify recently reported earnings per share (EPS) of $0.25, majorly missing expectations of $0.87, and revenue of $1.2 billion, missing expectations of $1.24 billion. In 2022, growth has been slowing, and they are currently increasing investments to further grow their fulfillment network. This missed earnings is even more drastic when compared to 2021’s proud 57% and 61% increase in sales and earnings, respectively. It is possible that because of the contrast to last year’s stellar performance, the stock is being punished too severely, hinting at potential success in the longer run. In this dark moment, we must remember not to lose sight of the grand scheme of things. Shopify dominates nearly a third of the e-commerce platform market in the US, with their competition WooCommerce Checkout and Wix.com following distantly behind. The company is a pioneer in an industry with over $160 billion in market potential, and Shopify has only captured 3% of the revenue opportunity. All of this short-term drama surrounding Shopify’s stock may influence its share price for the foreseeable future, but it is no question that the company is positioned for enormous growth over the long run.
As an added plus (for Shopify), their major competitor, Amazon, reported a $7.6 billion loss from its investment in Rivian Automotive. Ouch.
Last but not least–actually their stock has lost over 40% of its value in the last 30 days, and they have the lowest market capitalization of this month’s stock highlight–is Beyond Meat. While I didn’t give the plant-based industry leader a great introduction, they still are the industry leader for a reason: they continue to innovate. Beyond Meat has partnered with McDonalds to add the ‘McPlant,’ their plant-based burger, to the McDonalds menu and therefore open up a channel for Beyond Meat to reach billions. Their most recent earnings reported a net loss of $100.5 million, or $1.58 a share, compared to the net loss of $27.3 million, or 43 cents a share, in the same quarter a year ago. Net revenue, at $109.5 million, barely crawled up 1% from $108.2 million last year. Saddest of all, Beyond Meat briefly dipped under $25 on May 11th, falling below the company’s IPO (initial public offering) for the first time since the company went public about 3 years ago.
“Though we recognize that the decisions we are making today in support of our long-run ambition have contributed to challenging near-term results, including a sizable though temporary reduction in gross margin as we took cost-intensive measures to support important strategic launches, we are confident in the future we are building while advancing our mission,” Beyond Meat Chief Executive Ethan Brown stated regarding the results. Beyond executives were still concerned, however, mentioning “near-term uncertainty related to macroeconomic issues, including inflation and rising interest rates, COVID-19 and its potential impact on consumer behavior and demand levels, labor availability and supply chain disruptions, partially attributable to recent geopolitical tensions.” All uncertainty of the near-future aside, the market for meat alternatives is growing faster than we can imagine.
Note from the author:
To be writing this stock article throughout a global pandemic, after 2 years of absolute market volatility, in the wake of 40-year-high inflation levels, plans for a series of interest rate hikes by the Federal Reserve, and the global economic impacts of Russia’s war against Ukraine, has definitely makes for an interesting conclusion to the 3 stock highlight series. As a result of this cacophony of disrupting factors, shares of many of the world’s most innovative companies in some of the fastest-growing industries have been shot sky-high, demolished, boosted again, and now sit in a bloodbath. The market is moving on sentiment, has been for nearly 2 years, and heeds by no fundamentals. Wall Street and Main Street aren’t connected anymore. With the current corrections underway, many hope for more realistic company valuations as a result. As with entrepreneurs, the real talent for investors lies within seeing opportunity in chaos. By educating ourselves and those around us, we can take advantage of the current situation and look into financially sound companies (and those we love fundamentally) that will now carry attractively low valuations.
It has been an honor and a pleasure to write for you all, and I wish you all nothing but green markets and plentiful dividends. Cheers.