Why Beyond Meat Stock Has an Important Achilles Heel

Beyond Meat (NASDAQ:BYND) stock has really fallen off a cliff since reaching its highs back in late July 2019. However, in the medium- to long-term, Beyond Meat stock could rally a great deal.

Why Beyond Meat Stock Has an Important Achilles Heel

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The company has many important advantages, including its great-tasting burgers (yes, I’ve eaten one and that’s my opinion), the large and rapidly growing market for plant-based meat, its first-mover advantage and its deals with many large restaurant chains. Additionally, and importantly, its gross margins are firmly in the black — showing that it should become very profitable as its sales jump.

However, BYND does have a very important vulnerability. Specifically, its products are not meaningfully more healthy than beef burgers, and they’re much less healthy than actual turkey burgers.

Many of the same people who are most likely to seek out plant-based meat also care about their health. As a result, if the health shortcomings of the company’s products become more widely known, or if it’s discovered that its products cause health issues that have not yet been publicized, its sales could easily plunge.

Furthermore, if one of its competitors ever unveils plant-based meat that tastes as good or almost as good, Beyond Meat’s sales will likely tumble — causing Beyond Meat stock to sharply slump.

The Positive Catalysts of Beyond Meat Stock

Once a company becomes the leader of a sector and its brand becomes ingrained in consumers’ minds, it often remains the leader of the sector for decades. At that point, even much larger companies often can’t dislodge it from its leadership position. Among the examples of this phenomenon are giants Netflix (NASDAQ:NFLX), Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).

With Beyond Meat now being sold by grocery stores and multiple large restaurant chains, the company is on the verge of reaching that status. Additionally, the huge amount of media coverage the company is getting should also help it attain that position quickly.

Of course, those deals with large restaurant chains will also boost Beyond Meat’s financial results going forward.

Furthermore, the market for plant-based meats is large and growing rapidly. UBS reports that the market was worth $5 billion in 2018, and it expects the sector to be worth $85 billion by 2030.

And, as I noted earlier, Beyond Meat is very tasty. I think it does taste very similar to a real hamburger.

The company’s gross profit was an impressive $32.8 million in their third-quarter earnings, showing that it can become extremely profitable as its sales ramp up and dwarf its fixed costs.

Meanwhile, the market capitalization of Beyond Meat stock is only around $7 billion. UBS‘ forecast indicates that the plant-based meat market could be worth $50 billion in 2025. So, if BYND has a 50% share of the market in that year, its sales would be $25 billion. Assuming that Beyond Meat stock trades at three times sales in 2024, its market cap would be $75 billion. Which, as of now, would be more than 10 times as high as its current market cap.

That sounds like a pretty appetizing gain to me.

The Potential Achilles Heel of Beyond Meat Stock

As I indicated earlier, however, BYND’s potential big problem is that its products aren’t too healthy.

According to Harvard, a four ounce Beyond Meat burger contains roughly the same calories (250) and saturated fat (six grams) as a four ounce 85% lean ground beef burger. But, unlike a beef burger, Beyond Meat’s burgers are highly processed. Also, they contain 390 milligrams of sodium, versus just 80 milligrams for a regular burger. However, Beyond Burgers do beat regular burgers when it comes to cholesterol, as Beyond’s burger has no cholesterol.

Still, I would say that, at best, it’s a tie as to which burger is healthier. And a real turkey burger — with its low sodium, low saturated fat and equivalent protein — would be a healthier choice than either a beef burger or BYND’s product. Of course, a black bean burger is also healthier than a beef burger, or Beyond’s burger.

At this point, the Beyond Burger and its closest competitor — the Impossible Burger — basically have the same “health stats.” But what if, one day, Impossible Foods or another one of Beyond’s competitors invents a burger that’s as tasty or almost as tasty, but is much healthier than the Beyond Burger?

Since many people give up meat for health reasons, Beyond Meat would probably lose a great deal of its market share to the hypothetical competitor — causing Beyond Meat’s shares to plunge. And, if a study finds that Beyond’s burgers are meaningfully more likely to cause cancer or diabetes than beef burgers, the company’s sales would also probably plunge. Even if, for some other reason, consumers become more aware of the health deficiencies of the Beyond Burger, BYND could be in trouble.

The Bottom Line on Beyond Meat Stock

Overall, Beyond Meat stock could easily surge tremendously over the longer term. But, due to the fact that its main product isn’t too healthy, the shares could easily crash and burn. So for that reason, the stock isn’t a great choice for risk-averse investors.

As of this writing, the author did not own shares of any of the companies mentioned above.

Article printed from InvestorPlace Media, https://investorplace.com/2020/01/beyond-meat-stock-important-achilles-heel/.

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