‘Purely a Valuation Call’: Why J.P. Morgan Just Downgraded Beyond Meat

Underwriter J.P. Morgan’s new downgrade of Beyond Meat may be hard for giddy investors to swallow.

After taking the alternative meat company public, J.P. Morgan downgraded the stock to “overweight” from a “neutral” rating early on Tuesday, setting its target price at $ 121 per share. The plant-based meat company’s stock is “beyond our price target,” J.P. Morgan analyst Ken Goldman told clients in a note.

The stock has seen a meteoric rise since its initial public offering in May, soaring some 600% from its debut price at $ 25. “This downgrade is purely a valuation call,” Goldman said. “As we wrote last week, ‘At some point, the extraordinary revenue and profit potential embedded in BYND… will be priced in’ – we think this day has arrived.”

But despite the selloff—the stock was down 21% in intraday trading on Tuesday—some experts believe the dip is more of a reaction to the overexcitement around the stock rather than it’s value.

“I think it’s certainly possible that that excitement has gotten a little ahead of where the business is at the moment,” Coye Nokes of OC&C Strategy Consultants, who specializes in the retail and consumer space, said. “But I can understand the downgrade – it’s more a move to neutral that kind of says, ‘okay, it’s pretty pricey at the moment and a little bit of a calming down is not unreasonable.’ It’s certainly not saying they don’t believe in the future of [this company], but the valuation has gotten a little bit ahead of where they are and could be overpriced in terms of what you pay if you bought now versus how long that might take for that to play out.”

Nokes maintains that the plant-based food space is “one of the interesting growth areas in food right now,” and that investors appear bullish on Beyond Meat’s more mainstream appeal compared to other niche companies in the space.

While some investors may have been spooked on Tuesday, analyst ratings remain fairly neutral.

According to Bloomberg data, Beyond Meat currently has two “neutral” ratings, two “hold” ratings and now an “overweight” rating from the company’s underwriter J.P. Morgan.

And for many experts in the food space, Beyond Meat is still appetizing if they are able to continue to execute.

“From the topline perspective, clearly there’s a market for these products,” Jeff Robards, MD and head of the global consumer foods group at investment bank Alantra, said. “I think the thing that’s driving the demand from a consumer perspective is really the environmental and sustainability element. Beyond Meat and Impossible Foods are solving for that in a really good way, so clearly there’s a lot of mileage.”

Competition heating up

But Robards maintains that disruptors in the food space like Beyond Meat will need to ensure they are able to keep up with production and sales growth in order to justify a higher valuation – especially with competition on the way.

“You have Tysons and Nestle who are going to be getting into this market with huge amounts of capital, so there’s definitely a market for it but there’s going to be competition,” Robards said. “I do think people like Beyond Meat and Impossible Foods have a bit of a first-mover advantage and seem to have created products that are really good and interesting for the consumer, but there’s a lot that’s going to have to shake out in this overall market opportunity, so it’s going to be really important for them to continue to execute.”

Although the company’s stock plunged with the news, the dip may be a potential opening for investors, as Robards says it may be “the one opportunity to get in on this market trend.”

Still, the trend of potentially overvalued IPOs isn’t anything new. Perhaps infamously, ridesharing company Lyft had a bumpy ride in its first few weeks as a publicly traded company. Debuting at what many analysts considered an overvalued price-point, the stock proceeded to plummet some 20% in only its second week after going public.

But much like Lyft, Beyond Meat is becoming a hot stock to short – recently becoming one of the more expensive stocks to borrow for. In fact, according to analytics firm S3 Partners, the company’s stock-borrow fees for existing shorts topped 134% as of Monday.

And for some, Beyond Meat is a candidate for a squeeze.

“There is a very good chance that there will be a Beyond Meat short squeeze in the very near future,” Ihor Dusaniwsky, managing director at S3, wrote in a report Monday. “With no additional or impactful short side activity possible, Beyond Meat’s stock price should continue its upward trajectory with very little opposition.”

The short squeeze, which occurs when a stock moves higher and forces short sellers to close their positions, could indicate a vote of confidence in Beyond Meat from investors.

And analysts aren’t exactly souring to the stock just yet, with the highest target estimate at $ 125 from Credit Suisse. For those like Nokes, the stock may still have some blips to ride out. “I wouldn’t be surprised if there continues to be some volatility,” Nokes said. “There’s a lot of short selling going on and a lot of people playing differently in this stock, and I think that is just going to be a bit volatile for a little while anyway.”

Still, whether or not the company will continue to sizzle for investors is yet to be determined.

More must-read stories from Fortune:

—A red flag to investors: The stock market may be hitting the “triple top”

—The Renault deal is dead, but Fiat Chrysler still needs a partner

—Many economists think the next recession will be before the 2020 election

—The S&P 500 has performed far worse under Trump than Obama

—Listen to our new audio briefing, Fortune 500 Daily