Beyond Meat (NASDAQ:BYND) stock had one of the most hotly anticipated IPOs of 2019. The high-tech producer of plant-based meat substitutes was riding a wave of consumer demand. Its products were being picked up by fast food restaurant chains and frequently selling out.
Within three months, Beyond Meat stock was up nearly 260%. However, it’s been all downhill for investors since then. From its July high of $234.90, BYND stock fell to $75.64 at Friday’s close.
What’s happening to Beyond Meat, and will Beyond Meat stock recover or decline further in 2020?
The Appeal of Plant-Based Meat
There has been a great deal of demand for plant-based meat from consumers. There have always been vegetarian alternatives to meat products like ground beef and chicken, but no real attempt was made to replicate meat with plant-based products. As a result, plant-based meat had limited appeal and was sold almost exclusively to vegans and vegetarians.
Beyond Meat’s version of ground beef looks like the real thing, cooks like the real thing, has a texture similar to the real thing and tastes very similar to the real thing. Meanwhile, among consumers, there have been growing concerns about the environmental impact of cattle farming, concerns about how animals are treated during meat production, and worries about how healthy eating meat is. That’s been a perfect storm for Beyond Meat in 2019, and the rapid gains of Beyond Meat stock after its May IPO reflected those trends.
The media coverage of Beyond Meat, however, hasn’t been exclusively positive. The health benefits of plant-based meats have also been challenged, not just because of their highly processed nature, but also because of the high amounts of sodium found in them. With the explosion in their popularity came some reality checks. Especially vocal were food scientists. For example, University of California-Davis professor Frank Mitloehner had this to say in an interview:
“When you look at Impossible Burger or Beyond Meat, they have 21 or 22 highly processed ingredients. So processed, that you are hard pressed in identifying the difference between those items, versus let’s say, pet food.”
Despite those issues and a coordinated campaign against plant-based meat from cattle farmers, plant-based meat products like Beyond Meat were in high demand this year. The success of companies like Beyond Meat led Barclays to suggest the market for plant-based meat could be worth as much as $140 billion in the next decade.
Beyond Meat Conquers the Fast Food Chains
In addition to showing up in grocery stores, Beyond Meat won multiple, high-profile restaurant contracts in 2018 and 2019. I’m based in Canada and in 2018, I was among the many Canadians who lined up when A&W (the country’s second-largest burger chain) launched its Beyond Meat burger. Most locations quickly sold out, but the burger has since become a menu staple at A&W.
Beyond Meat has been adopted — on at least a trial basis — at a growing number of fast food and casual restaurant chains. In 2019, among the restaurants that added the burger were McDonald’s (NYSE:MCD), Denny’s (NASDAQ:DENN), Dunkin’ Donuts (NASDAQ:DNKN), and Yum! Brands’ (NYSE:YUM) KFC.
What Does the Future Hold for Beyond Meat Stock?
The problem for Beyond Meat is that its success has legitimized plant-based meat. The company has proven there is strong consumer demand for such meat. Restaurants are lining up to sell its products, as are grocery stores. However, that has led to increased competition for the company.
Not only is Beyond Meat worried about its key rival, Impossible Foods, but traditional food manufacturers are now ramping up their own offerings.
The prospect of competition — from companies that have established relationships with restaurants and grocery stores and the ability to produce much more rapidly — has spooked the market. At this point, most investment analysts think that Beyond Meat stock can rally in 2020, but even the most optimistic don’t expect to see the shares return to their record highs set in July. In fact, most have a “hold” rating on Beyond Meat stock, as they take a wait-and-see approach.
InvestorPlace contributor Will Healy is leaning strongly toward avoiding BYND stock, seeing the plant-based meat frenzy as creating a stock bubble that will eventually burst. I have to agree. Much as I personally like having the option of realistic plant-based meat alternatives, I am also unconvinced that Beyond Meat stock is going to regain its July 2019 levels any time soon.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
