Beyond Meat Stock Is Positioned for Big Gains in 2020

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Microsoft (NASDAQ:MSFT) founder and esteemed technology figure Bill Gates once said that people tend to overestimate what can be done in a year, and underestimate what can be done in a decade. That saying couldn’t ring more true for plant-based (PB) meat maker Beyond Meat (NASDAQ:BYND).

Beyond Meat Stock Is Positioned for Big Gains in 2020

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Of course, Beyond Meat and the PB meat trend weren’t going to take over the world in year one. But, at $250 per share in mid-2019, that is exactly what Beyond Meat stock was priced for — world domination in year one. Obviously, that didn’t happen. BYND stock has since plunged.

But, Beyond Meat and the PB meat trend will take over the world in year ten. At $70 per share, Beyond Meat stock isn’t priced to for this. As such, as Beyond Meat does proceed to turn into a meaningfully large player in the global meats market over the next decade, BYND stock will rally.

In other words, harking back to the Bill Gates quote, investors overestimated what Beyond Meat stock could do in 2019, and now, they are underestimating what Beyond Meat stock can do in the 2020’s. Over the next twelve months, this under-estimation will become obvious as Beyond Meat sustains its huge growth trajectory through continued retail expansion and healthy consumer adoption trends.

As it does become more and more obvious, Beyond Meat stock could realistically surge back above $100.

PB Meat Is the Future

Even as a staunch carnivore today who loves burgers and steaks, I believe that plant-based meat is the future of meat consumption. Why? Three big reasons: personal health, resource conservation and cost.

On the personal health front, plant-based meats are already less caloric than animal-based meats today, with less cholesterol and fat. Sure, that doesn’t necessarily mean they’re healthier, as lab-made meat has a bunch of odd ingredients in it that many nutritionists would never recommend. But, science will ultimately improve the PB meat production process so that all those odd ingredients, won’t be around for much longer. Thus, by 2030, I think there is a high likelihood that PB meat will be significantly healthier for human consumption than animal-based meat.

With respect to resource conservation, plant-based meat: 1) can be grown in a lab, in mass quantities, and doesn’t require much natural land resources; 2) doesn’t require the slaughter of animals; 3) reduces carbon emissions; 4) is an overall plus for the environment. As governments, corporations and consumers become more ecologically aware and sensitive throughout the 2020’s, there will be a bigger push on all three fronts to increase PB meat production and consumption.

Meanwhile, PB meat has the potential to be way cheaper than animal-based meat. Because it doesn’t require huge farms or any animals, the at-scale cost of running a PB meat production site should be significantly lower than the at-scale cost of running an animal-based meat production site. This will lead to lower operating costs for producers, which will be passed on to consumers in the form of lower retail prices. It’s an economic win-win, at scale.

Beyond Meat Will Sustain Big Growth

What Tesla (NASDAQ:TSLA) is to the electric vehicle (EV) industry, Beyond Meat will become to the PB meat industry.

That is, Tesla is the brand name in the EV world. When you think of EVs, you think of Tesla. And, Tesla has continued to grow its brand equity in the space through sustained product innovation and new vehicle launches, to the point where the company is now the unchallenged global EV leader with a market cap that rivals the biggest auto companies in the world.

Beyond Meat will do something similar in the PB meat world.

Right now, Beyond Meat is the brand name in the PB meat world. When you think of PB meat, you think of Beyond Meat. Beyond Meat will continue to grow its brand equity in the space by winning more contracts with grocery stores, restaurants and fast-food chains, so that everywhere you see PB meat, you see Beyond products. At scale, this will translate into Beyond Meat becoming the unchallenged global PB meat leader with a market cap that rivals the biggest meats companies in the world.

Tyson Foods (NYSE:TSN) has a $33 billion market cap. Beyond Meat’s market cap is under $5 billion. That discrepancy is the foundation for the long-term bull thesis in Beyond Meat stock.

Beyond Meat Stock Will Rally

In 2020, Beyond Meat stock has a very realistic opportunity to rally back above $100.

My long-term model for Beyond Meat makes some very basic assumptions. The global meats market will gradually expand from $1.4 trillion today to $1.5 trillion by 2030. PB meat penetration in that market will grow from sub-1% today to 10% by 2030, implying a PB market of $150 billion. Beyond Meat will go from a ~2% player in that market today to a ~5% player at scale. Gross margins will expand towards management’s long-term target of 35%. The operating expense rate will drop towards a more meats-industry-average level of 10%.

Putting all those assumptions together, my modeling suggests that Beyond Meat could net about $15 in earnings per share by fiscal 2030.

Based on a packaged foods sector-average 17.5 times forward multiple and a 10% annual discount rate, that equates to a 2020 price target for Beyond Meat stock of over $100.

Bottom Line on BYND Stock

In 2019, investors overestimated what Beyond Meat stock could do in a year. Now, they are underestimating what Beyond Meat stock can do over the next decade. This underestimation will become very obvious as Beyond Meat sustains huge growth throughout 2019 behind continued retail expansion. As it does become obvious, BYND stock will rally back above $100.

As of this writing, Luke Lango was long BYND.


Article printed from InvestorPlace Media, https://investorplace.com/2020/01/beyond-meat-stock-is-positioned-for-big-gains-in-2020/.

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