Life as a public company has amounted to nothing short of a wild roller coaster ride for Beyond Meat (NASDAQ:BYND). The plant-based-meat leader went public in early May at $25 per share. Within a month, BYND stock was above $100. Within two months, it was above $150. Within three months, it was above $200. Today, it trades at $167.
In other words, over the span of three months, Beyond Meat stock has gone from $25 to $240 to $160. That’s volatility.
This volatility will persist. Over the next few months and quarters, you will get a few big rallies in Beyond Meat stock. You will also get a few big drops. That is simply the nature of the game when you have a high-growth company with a small base that is leading the charge in a nascent but potentially enormous market.
What’s the implication for investors? It’s three-fold. One, don’t buy Beyond Meat stock unless you can stomach the volatility and ride out the waves. Two, if you can stomach the volatility, you probably want to own Beyond Meat stock for the long haul, since there is a pathway for this stock to at least triple in the long run. Three, buy the dips in Beyond Meat stock only when the fundamentals make sense to do so.
Let’s break down those three implications, and further understand if today is the right time to buy the dip in BYND stock.
Don’t Buy Beyond Meat Stock Unless You Can Handle Volatility
Beyond Meat stock is and projects to remain a highly volatile stock, so if you can’t handle that heat, you probably should get out of the plant-based-meat kitchen.
On one side, you have the nosebleed valuation. Beyond Meat has a near-$10-billion market cap. Sales this year project to come in around $250 million, and the company is still far from profitable. So, you have a stock trading at 30x 2019’s estimated sales with no profits. Ostensibly, that’s a ridiculous valuation. Thus, on any operational hiccups, BYND stock will get killed. See the big drop from $240 to $160 recently after ho-hum earnings and news of a secondary offering.
On the other side, though, you have a huge growth trajectory and big long-term potential. Beyond Meat grew sales by nearly 300% year-over-year last quarter. Further, revenues project to be just $250 million this year, in a $1.4 trillion global meats market. Thus, you have a company that has more than enough firepower and elbow room to grow into its rich valuation. On any good news, then, BYND stock will roar higher. See the big rally from $25 to $240 before the Q2 print.
Both of these dynamics will persist. For the foreseeable future, Beyond Meat stock will remain richly valued. It will also remain a hyper-growth stock in a booming industry. Thus, big rallies and big drops will persist, too, meaning this stock is not for the faint of heart.
You Probably Want to Own Beyond Meat for the Long Haul
Zooming out, if you can handle the volatility, you probably want to buy Beyond Meat stock and hold it for the long haul.
The reality here is that Beyond Meat is in the top of the first inning of a huge long term growth narrative, wherein: 1) plant-based meats turn into a sizable chunk of the huge global meats pie, 2) Beyond Meat remains an important player in that soon-to-be huge global plant-based meats market, and 3) Beyond Meat stock turns into a multi-bagger.
Here are the numbers. The global meats market measures in around $1.4 trillion today. It will gradually grow to about $1.5 trillion by 2030. Global plant-based meats measure in around $12.1 billion today, or just under a percent of total meats sales. Plant-based dairy accounts for 14% of total dairy sales. That number is only growing, and current consumption trends indicate that plant-based meat can actually exceed that level of penetration at scale. By 2030, plant-based meats could account for 20% of the $1.5 trillion global meats market, or for about $300 billion in total sales.
Beyond Meat’s revenue this year projects as $250 million, or roughly 2% market share. BYND should be able to grow share over time for three reasons. First, Beyond Meat will introduce more products. Second, the company will more aggressively expand into the food-service channel. Three, Beyond Meat will leverage its first-mover’s advantage to become “the brand” in plant-based meat, which will grow consumer mind share. Consequently, by 2030, Beyond Meat could very reasonably grab 5% market share.
At a 5% share, Beyond Meat is looking at a revenue potential of $15 billion by 2030. Management has said that 35% is the long-term gross margin target. That seems reasonable, given that gross margins are already around 30%. Further, given operating expense rates at other food giants, Beyond Meat can probably push its opex rate down to around 20% if revenues get to $15 billion. Net net, operating profits could hover around $2.25 billion, which — after accounting for taxes — should flow into about $1.8 billion in net profits.
Throwing a market average 16-forward multiple on that, it then becomes clear that Beyond Meat stock has the potential to warrant a near $30 billion market cap one day — nearly three-fold today’s market cap.
Buy the Dip In BYND When the Fundamentals Add Up
Although Beyond Meat stock has huge long-term potential, buying the dip in BYND stock shouldn’t be done blindly. Instead, it should be done only when the fundamentals warrant it.
The above math yields a 2029 valuation target for Beyond Meat of $28.8 billion. By then, the overall diluted share count will be far above today’s 60 million share base, as the company continues to issue new stock for a variety of purposes. A reasonable estimate for the 2029 share count is maybe 70 million. Thus, a reasonable 2029 price target for Beyond Meat stock is around $410.
Discounted back by 10% per year, that equates to a 2019 price target of under $160. You want to buy at a discount to that. Thus, a reasonable time to start buying the dip in BYND is if the stock drops below $150 in the foreseeable future.
Bottom Line on BYND Stock
Beyond Meat stock is a long-term winner that has sprinted ahead of the fundamentals for the time being. As such, while this stock will head higher long term, it will first have to grind lower in the near term until it finds fundamental support.
That support should arrive around $150, meaning the time to buy more is if the stock drops below $150. Until then, the safest thing to do is wait and see.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities, but may initiate a long position in BYND within the next 72 hours.