If a marijuana stock could fulfill its potential, it would be like Beyond Meat (NASDAQ:BYND). The California-based maker of faux meat products is getting the kind of growth cannabis companies claimed they would get when their stocks were hot, in 2018.
Sales more than doubled just between the first and third quarters of 2019. Beyond Meat has proven it can scale and gain critical restaurant distribution.
This has taken its valuation well beyond fundamentals. Beyond Meat opened for trade Jan. 15 with a market capitalization of $6.8 billion on expected 2019 revenue of $280 million. This assumes it hits analysts’ consensus estimate of $76 million in sales when it next reports quarterly results.
By flying well past analysts’ one-year price targets, Beyond Meat has become a symbol of 2020’s booming market. The question is whether it has the legs to justify anything close to its current valuation.
The Faux Meat Trend
Beyond Meat’s strategy is one that Wall Street likes. Get there first, get there with the most, and dominate the conversation.
The company has replacements for beef, pork sausage and chicken, and distribution agreements with nearly a dozen fast-food chains. It already sells in Europe and Asia, using a variety of plant proteins, and red beet juice so its products appear to “bleed.”
Beyond Meat stock exploded out of the gate after its May IPO. By late July it was trading at over $230 per share. Analyst skepticism beat the stock down below $100.
Having established the market, however, Beyond Meat now faces the problem of defending it.
Tyson Foods (NYSE:TSN), which was an early Beyond Meat investor, calls its faux meat line “Raised and Rooted.” Kroger (NYSE:KR) calls its effort “Simple Truth.” Nestle (OTCMKTS:NSRGY) has the Awesome Burger. Conagra Brands (NYSE:CAG) has the “Ultimate” line. Hormel Foods (NYSE:HRL) sells “Happy Little Plants.” Kellogg’s (NYSE:K) uses the name “Incogmeato.” Privately held Aldi calls its product “Earth Grown.”
So far Walmart (NYSE:WMT) is selling a variety of plant-based meat products, including those from Beyond Meat. If it commits to one supplier, or begins making its own products, it will have an enormous market impact. With the supermarkets and food industry standing against it, Beyond Meat must sell as a premium product to people who have tried it in a restaurant.
What Is Plant-Based Meat?
It’s one thing to claim you have meatless meat. It’s something else to show you have meatless meat that tastes like meat.
While Beyond and its grocery competitors have focused on scaling production and controlling distribution, privately held Impossible Foods treats meatless meat as a tech product. Its CEO Patrick Brown offers a messianic attack on the whole meat complex, a burger that seems to “bleed” and a new pork line introduced at the Consumer Electronics Show.
The Short Squeeze
The Impossible Foods announcement gave Beyond Meat stock new power.
That’s because just as an abundance of suppliers may overwhelm Beyond in the market, an abundance of shorts can lead to a short squeeze.
With over one-quarter of the stock held short, and the cost of holding the short rising to over 100% per year, a short squeeze was inevitable. The shares had to literally halt trading Jan. 14 over volatility.
The Bottom Line on Beyond Meat stock
Right now, Beyond Meat is a trade, not an investment.
It’s impossible to tell how well the Beyond alternatives will be accepted. An enormous market study is taking place around the country right now.
How close is the flavor of Kroger or Kellogg’s faux meat to the real thing? Does that matter, as Impossible Foods suggests? What’s the price sensitivity of meatless meat buyers? Can Beyond Meat make a profit in a price war?
There are too many “unknown unknowns” for this investor to take a plunge. Traders can play here, but even young investors should wait for things to settle down before committing.
Dana Blankenhorn is a financial and technology journalist. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Write him at email@example.com or follow him on Twitter at @danablankenhorn. As of this writing he owned shares in QSR.