Beyond Meat (NASDAQ:BYND)is at it again. As of this writing, Beyond Meat stock is up 13% in trading Tuesday on a rumored partnership with Starbucks (NASDAQ:SBUX). The coffee giant would add to a steady stream of customer wins, and general good news, for Beyond Meat in recent weeks.

A trial with McDonald’s (NYSE:MCD) in Canada has driven some of the recent optimism. This month, Fiesta Restaurant Group (NASDAQ:FRGI) added Beyond Meat to the menu at its Pollo Tropical concept.

The company picked up Costco Wholesale (NASDAQ:COST) as a customer last month. And Dunkin Brands (NASDAQ:DNKN) is launching a Beyond Meat sausage sandwich hawked by rapper Snoop Dogg, himself a Beyond Meat investor.

These wins have sent BYND soaring. After what clearly looks like a bubble in retrospect led Beyond Meat to a high of $239.71 in late July, shares fell 68% into the end of the year. They’ve now gained 66% so far in 2020. A “short squeeze” no doubt has helped, but the steady stream of positive news is a major contributor as well. The fate of Beyond Meat stock may depend on how much of that good news is left.

The Risks to BYND

Even before this recent rally, Beyond Meat stock wasn’t cheap. After the rally, it’s even more expensive. Shares trade at over 300x the consensus 2020 earnings per share estimate. A ~15x forward price to sales multiple doesn’t necessarily sound that high in this market, but this is a manufacturer of what may become a commodity product, not a software developer with 70%-plus gross margins.

To be sure, valuation alone isn’t a reason to sell, or short sell, Beyond Meat stock. The business already has shown its growth potential. Revenue increased 253% in the first nine months of 2019, on top of a 170% jump in 2018. Sales were less than $9 million in 2015, according to a prospectus filed with the U.S. Securities and Exchange Commission last year. Analysts on average expect nearly $500 million in 2020.

All that said, there’s a big risk going forward: competition. Privately held rival Impossible Foods has driven strong sales at Restaurant Brands International (NYSE:QSR) concept Burger King. Consumer giant Nestle (OTCMKTS:NSRGY) is moving aggressively into the space. Foodservice operator Sysco (NYSE:SYY) just launched its own plant-based meat patty.

Beyond Meat has grown exponentially in the last few years as the adoption of plant-based meat (or “faux meat,” as some call it) has done the same. But competitors are going to take at least some of the market’s growth going forward.

There’s an interesting, if imperfect, corollary with sparkling water play National Beverage (NASDAQ:FIZZ). That company had a major hand in driving demand for its entire category. Giants (including Nestle) moved in, sales slowed, and FIZZ stock lost two-thirds of its value. Beyond Meat has a much higher valuation than National Beverage stock ever did, which gives it even less room for error.

Why the Market Size Matters

To be sure, I still believe that Beyond Meat will be one of the preeminent players in plant-based meat. It has the first-mover advantage. It’s poured years’ worth of effort and hundreds of millions of dollars in developing products that mimic actual meat. I personally believe the Beyond Burger does a fine job (though I know others strongly disagree).

But the company simply won’t have the market to itself so that market needs to be substantial. In its prospectus, Beyond Meat estimated its potential addressable market in the U.S. alone at $35 billion. That would be enough to drive upside from here. Give Beyond Meat a solid 30% market share and operating margins of 10% and, at current tax rates, net income would be over $800 million annually.

A 25x price to earnings multiple would suggest Beyond Meat’s market value could roughly triple. Even if that growth takes a decade, BYND still returns almost 12% a year in this model with no assumed contribution from international sales.

In that context, the gains in Beyond Meat stock on customer news makes some sense. It also explains why BYND on occasion has risen when Impossible Foods does well. If plant-based meat is a legitimate multi-billion-dollar market annually, the biggest producers likely will win. Beyond Meat has a good shot at being one of these winners — and as crazy as recent trading has been, that still leaves potential upside from current levels.

What Is the Right Market Size?

Of course, that $35 billion is an estimate — and one based on potentially questionable assumptions. Beyond Meat used the plant-based dairy business as its baseline. Plant-based milks have captured about 13% of the dairy market. The $35 billion estimate for plant-based meat assumes it gets the same share of what in 2019 was a $270 billion meat market over time.

There are some issues with that methodology. Plant-based milks are notably more expensive than their traditional counterparts; on a unit rather than dollar basis, their share no doubt is much smaller than 13%.

Plant-based meats, as manufacturing improves and suppliers gain scale, may actually be cheaper over time. 13% share on a unit basis may only equate to something closer to 10% in terms of dollars.

Allergies are a larger issue on the dairy side. Alternatives to cow’s milk are scarcer: a consumer avoiding red meat could choose a plant-based alternative, or just switch to more fish, poultry, and pork.

This is not necessarily a criticism of Beyond Meat’s estimate; the size of the market truly is anyone’s guess. Impossible Foods founder Ethan Brown has said his company wants to literally replace animal sources of protein. In that scenario, the market worldwide would be in the hundreds of billions.

Skeptics might see current sales growth as something close to a fad — or at least driven in large part by curious consumers who won’t be long-term customers.

The Case for Beyond Meat Stock

But increasingly, an investor’s view of that market size is a pretty good proxy. A $35 billion U.S. market and a $50 billion or $60 billion worldwide opportunity is easily enough to support the current $7.5 billion market capitalization assigned Beyond Meat — as long as the company executes.

The steady stream of customer wins suggests it’s doing a good job on that front so far.

If, however, the market is limited mostly to vegans — a total market estimated to be just $24 billion six years from now, and one including a vast array of products — the math just doesn’t work. The company would have to not only be the market share leader, but be something close to the market, for its stock to have a material long-term upside.

Obviously, other factors matter. And BYND’s ten-and-a-half months on the public market show that investors and traders need to be nimble in taking and sizing a position in the stock. Still, even with the stunning gains year-to-date, the case at its heart remains relatively simple. Beyond Meat stock isn’t as expensive as it seems — if its market is larger than it appears.

As of this writing, Vince Martin has no positions in any securities mentioned.