Beyond Meat (NASDAQ:BYND) reached a market value above $14.7 billion, not long after its IPO, and BYND stock soared to over $240 per share.
This was absurd. Beyond Meat made revenue of just $230 million in the last 12 months ending September 2019 trading for over 64 times 12-month revenue for that period.
That ratio of price-to-sales was so high it would be considered pushing the envelope even if it was a measure of price-to-earnings.
Therefore, it is no surprise that BYND stock has fallen significantly. It is now down to $81.48 or so. That gives Beyond meat stock a market value of over $5.1 billion.
That still seems extraordinarily high. After all, BYND still is not making a cash flow profit. Its free cash flow in the last year was negative $53.6 million.
So Why Is Beyond Meat Still Trading So High?
First of all, Beyond Meat gave an outlook for its full-year 2019 EBITDA cash flow. It said to expect $20 million in EBITDA for the year to December 2019.
Moreover, the company upgraded its full-year estimate for 2019 revenue. On Oct. 28, 2019, BYND said its 2019 revenue is expected to be between $265 million to $275 million. That is an upgrade from its prior estimate of $240 million.
But like I said, free cash flow was negative. You can’t pay bills with EBITDA. In the latest quarter to September, free cash flow was negative $2.3 million.
In fact, if it weren’t for another $37.7 million equity shares that BYND sold during Q3, its cash balance would have gone down. I estimate that the balance would have been $275 million, down 12%.
Keep in mind that without Beyond Meat’s IPO in Q2, which raised $256 million, it would have been out of cash, or deep in debt.
Analysts Love Beyond Meat Stock
BYND stock is a classic momentum stock. Analysts are in love with it. This is reflected in their projections for 2020 revenue and earnings.
For example, analysts surveyed by Seeking Alpha estimate that 2020 revenue will be $486 million. This is 73% higher than their estimates of $281 million for 2019. (Note this is higher than the 2019 outlook guidance given by Beyond Meat).
That 2020 estimate puts Beyond Meat stock on a forward price-to-revenue ratio of 10.5 times revenue. That is much lower than the historical TTM ratio of 64 times I mentioned above.
However, these same analysts believe Beyond Meat will produce 2020 earnings of 33 cents per share. That means Beyond Meat stock is still over 250 times income.
This is the classic scenario for momentum type stocks. The price is so high since investors are willing to pay up many years in the future for its estimated growth.
McDonald’s – Lovin Beyond Meat?
Reports came out recently, that McDonald’s (NYSE:MCD) has been testing using Beyond Meat in some of their locations in Canada. Barron’s just reported that Beyond Meat’s competitor Impossible Foods would not be used at McDonald’s.
This could help Beyond Meat stock, as, if this is true, winning the MCD account for all U.S. locations for BYND would be huge. Or would it?
Interestingly, it appears that rural locations were not very interested in Beyond Meat hamburgers. So this is good news and bad news. The bad news is that McDonald’s may as a result of the tests in Canada not roll out the Beyond Meat to all its locations – only its more urban ones.
What Should Investors Do With Beyond Meat Stock?
I do believe that Beyond Meat will grow its revenue significantly over the next year. In fact, its earnings and cash flow may turn significantly positive.
But the key is to try and buy BYND stock when there is an element of a bargain price. Typically this will be during negative news. Often the best time to do this is when a company does not meet expected revenue or earnings growth expectations. Look to jump on the Beyond Meat bandwagon during one of those opportunities.
As of this writing, Mark Hake, CFA does not hold a position in any of the aforementioned securities. Mark Hake runs the Total Yield Value Guide which you can review here. The Guide focuses on high total yield value stocks. Subscribers a two-week free trial.
