Last week the NASDAQ exchange witnessed the most spectacular company IPO debut since 2000. There would be a temptation to seize upon the words “IPO” , “NASDAQ” and “2000” before writing a cautionary comment on a market overheating and revisiting the fearless greed of twenty years ago. However, there’s a significant flaw in using Beyond Meat’s 160% first day share price spike as a prescient data point. While there is no doubt that young technology companies are attracting the vast majority of investor funds these days, Beyond Meat has challenged that narrative as a straight forward food company. This meat substitute business is a cursory reminder that consumer businesses selling every-day products can generate enormous returns for investors.
Just ask the 20,000 pilgrim investors in Omaha for the Berkshire Hathaway AGM last weekend. Many attendees will have fond memories of great returns generated by investments in Coca-Cola, Heinz, Kraft and Dairy Queen accompanied by Warren Buffett’s wise words, “ Above-average returns are often produced by doing ordinary things exceptionally well.” This is worth bearing in mind when one hears of retail investor frustration at missing out on “hot” technology funding rounds. In an Irish context the numbers would certainly indicate professional investors are ploughing most funds and analyses into technology stories – KPMG in its Venture Pulse report for Q1 2019 found $67m of the almost $69m raised by companies was concentrated on technology applications in healthcare and finance. This sort of environment can “crowd out” companies seeking funding in more traditional sectors who at first glance might not conjure up visions of the next Amazon. However, to paraphrase the Sage of Omaha, the time to become greedy is when the majority are fearful. And, perhaps the place to become greedy is more likely to be on crowdfunding platforms which consumer focused franchises are increasingly using to fund their growth.
At Spark Crowdfunding it has been noteworthy to see a number of these franchises complete successful funding rounds on the platform. In fact, consumer businesses approaching Spark Crowdfunding for potential campaigns account for a significant 70% of overall interest. For private investors there is a real possibility that current trends/fashions in the professional venture capital world are leaving some consumer gems on the investment table. Readers may aspire to being an early investor in an Amazon story but you might be surprised by a couple of consumer stories which have generated superior returns to Amazon and other titans of technology. Fancy an energy drink or a pizza?
Let’s go back almost a decade ago to 2010 and you had the chance to buy shares in Amazon, Apple or Google. All would have generated very large returns from circa 300%(Google) to over 800%(Amazon) but not even a bonus 400% from a Facebook IPO in 2012 would catch a simple pizza story. Yep, Domino’s Pizza shares purchased in 2010 would have generated a 2000% return as per the stunning chart below:
If you wanted an energy drink to go with your pizza then you could have ignored the TMT frenzy in 2000 with an investment in Monster Beverage Inc. That investment would have generated returns just shy of 60,000% and is, in fact, the biggest winner in the US stock market this century and ten times the returns on the almost 6000% produced by Apple. Here’s the energized performance of Monster Bev in the chart below:
The predictive power of a valuation is pretty much zero as human beings are not very good at forecasting the future. So, if the professionals are chasing hot technology and even hotter valuations there’s an opportunity for retail investors to unearth some real consumer gems with real growth futures at an early stage and lowly valuation. The future is almost impossible to predict but the Impossible Burger has arrived and with reasonable certainty we can say human beings will continue to eat and drink…..