Is Beyond Meat Still A Tasty Investment?

Beyond Meat (NASDAQ: BYND) is the only pure-play in the plant-based meat market and reported record net revenue growth in Q2 of 2020. It is capitalizing on a global megatrend with nearly one in four people in the U.S having reported reducing their meat consumption due to health or environmental reasons. With a huge total addressable market valued at roughly $1.4 trillion, how is Beyond Meat positioned for future growth? 

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Bull Case

In Q2 2020, Beyond reported record revenue growth of 69%, spurred by 195% growth in retail which offset the 60% decline in food services in the U.S. The company reported a net loss of $10.2 million in the quarter despite a profit in Q1, mainly due to repackaging costs from food services to retail. The ability to pivot and post record growth is particularly impressive.

Beyond is focusing on international markets such as China and has expanded to ten new countries since March, bringing the total to eighty-four countries and 112,000 outlets worldwide. Its goal is to have production up and running in China by the end of the year along with a production facility in the Netherlands. These new facilities will serve the markets of Europe and Asia in a bid to help lower costs for the consumer, and this geographical presence may give Beyond an advantage over rivals, particularly in China. 

Beyond has performed well in China thus far, and according to founder and CEO Ethan Brown, the brand is beginning to “gain traction”. It has collaborated with Yum! Brands China, which operates fast-food giants such as KFC and Taco Bell. It has also established partnerships to supply a number of Alibaba’s Freshippo stores in Shanghai and launch products in Starbucks locations across China, which Brown has stated has done well. China is key to the long-term success of the company due to the size of the market. 

Beyond has continued to increase its brand awareness since its IPO and has increased from 23% to 51% in July 2020 according to surveys conducted in these time periods. This can be taken with a pinch of salt but demonstrates increased awareness and that building a brand in the short term is critical to capitalize on its first-mover advantage. Almost 50% of Q2 customers came back for more and in the U.S household penetration has almost doubled year-over-year.

Bear Case

The biggest threat to Beyond’s growth is the level of competition it is facing from competitors such as Impossible Foods, Tyson Foods, Nestle and more. Although these entrants are no surprise to Beyond, being a first mover in the space will not be a lasting competitive advantage. Beyond must continue to innovate and adapt to consumers’ tastes in order to prosper. Competitors like Nestle are larger and have more extensive cash reserves to put into innovation and marketing. It is evident from its high growth that Beyond has not suffered from the impact of these new entrants, but whether it stays this way remains to be seen. 

Another risk is the potential loss of high-profile partners if consumers do not buy the food. Starbucks, for example, has also partnered with competitor Impossible Foods and will not sacrifice its own business for the sake of Beyond. It will have to continue to improve its products and stay ahead of the competition. So far, Beyond has proven to be able to capture, maintain, and expand these partnerships and recently expanded to 2,400 Walmart stores. 

Beyond is also trading at a rich valuation at nearly 300 times and price to sales of 25 forward earnings, which is extraordinarily high. However, it is not uncommon for growth stocks to appear “overvalued” by traditional metrics, but Beyond must execute on its vision.

One of our golden rules at MyWallSt is “Buy What You Believe In”. If you believe that this company will remain the market leader and the shift to plant-based meat is not just a “fad” it might be a good investment for you. There are certain things to like, but the competition is formidable, so approach an investment in Beyond Meat with caution.

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