Did Beyond Meat (NASDAQ:BYND) just begin a cooldown? The Beyond Meat stock price fell from over $200 per share to around $165 per share as one restaurant chain opted not to include its plant-based meat on their menu. This ended a meteoric rise in the stock from when it launched its IPO in early May.
Whether this constitutes profit-taking or a sustained move down remains unclear. However, given its current multiple and the lack of a catalyst to take BYND further, investors should probably stay away.
A Closer Look at Beyond Meat Stock
Beyond stock fell as Yum! Brands (NYSE:YUM) restaurant chain Taco Bell announced that they would stay with their current vegetarian options. This also stopped the momentum that had taken BYND stock to more than eight times its IPO price in less than two months.
Many might see this drop as a “buying opportunity.” With an increased focus on healthy food, this could well be just the beginning for plant-based meat products. Moreover, even for traders who see the run-up as concerning, Taco Bell’s decision not to go with Beyond Meat does not justify such a drop.
Beyond Meat counts many prominent restaurant chains as clients. Del Taco Restaurants (NASDAQ:TACO) reported that they sold about two million Beyond Meat tacos since April. Consequently, they will add two burritos featuring the meat substitute. Plant-based meat has also found its way on the menus of other restaurants. Both Carl’s Jr. and TGI Friday’s feature items with Beyond Meat products.
Beyond Meat stock also benefits from its status as the only stock in this nascent industry. Its most direct peer, Impossible Foods, remains private. Tyson Foods (NYSE:TSN) also plans to offer a plant-based protein of their own, though they have not introduced such a product.
Watch the Valuation
Still, before placing buy orders on Beyond Meat, traders need to exercise caution. Several analysts have turned on BYND stock due to valuation concerns, and analysts project losses until at least next year. Most investors can understand this as Beyond Meat trades at around 87 times sales!
Many might also question the $10 billion market cap. Wall Street predicts $204.97 million in revenue for the year. Even if the 63.5% revenue growth rate for 2020 comes to pass, prospective buyers need to act cautiously in such cases.
Investors should also note that hot stocks take on higher risk in the food industry. Hot tech stocks tend to support higher multiples over long periods, making stocks with high valuations less risky. However, food industry stocks rarely gain premium price-to-earnings (PE) ratios or attention.
Tyson trades at less than 14 times earnings. Also, Food wholesalers tend to trade at multiples in the teens, lagging S&P 500 averages. Should Beyond Meat lose its sizzle, it could easily fall to such multiples.
Moreover, investors may have other stock choices in this industry soon. Impossible Foods does not plan an IPO so far. Still, the success of BYND stock could change those plans. Further, as Tyson or other food producers enter the business, some investors might opt for those stocks.
Final Thoughts on Beyond Meat Stock
The multiple on Beyond Meat stock makes the equity unpredictable. The plant-based meat industry could amount to a game-changer in the food industry. Consequently, traders have bid the price-to-sales multiple on the equity into the stratosphere.
However, while the stock might trade at higher levels years from now, the short and medium term could become challenging. In most cases, failure to gain a customer such as Taco Bell would not have led to such a massive selloff in an equity. Still, with no obvious catalyst to take it beyond current levels, Beyond Meat could fall.
Moreover, seeing the stock trade at more than 87 times sales indicates a likely bubble. Most of its industry peers trade at multiples below S&P 500 averages. If BYND falls due to a turn in sentiment, it could leave investors underwater in this equity for years.
As we just saw with Beyond Meat stock recently, speculation in hot stocks can bring tremendous returns. However, at this point, such investors might fare better in an equity with more potential upside than BYND stock.
As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.