Ever since its initial public offering in May 2019, Beyond Meat (NASDAQ:BYND) has demonstrated the kind of volatility you might expect from a hot new prospect in the fake meat space. With the increasing popularity of veganism in celebrity circles and the millennial embrace of theoretically healthier (and more sustainable) lifestyles, it shouldn’t be too shocking that Beyond Meat stock managed to climb more than 250% shortly after its debut on the Nasdaq.
But it has since come back down to Earth.
That has many of us wondering where Beyond Meat stock might go in 2020. While you shouldn’t anticipate a repeat of its meteoric rise in 2019, there are still good reasons to pay attention to the meatless meat company this year.
Some of those reasons are promising, while others are quite worrisome. As such, I’m not going to flat out suggest that you buy the stock now.
Nonetheless, it’s inevitably going to be a hot topic among investors this year. So here are some quick hits about the tailwinds and headwinds Beyond Meat faces.
A Few Reasons to Be Bullish About Beyond Meat
The tailwinds for Beyond Meat largely revolve around not only the expansion of its market, but also its partnership and expansion plans.
• New research findings project that the growth potential for meatless meal providers is significantly greater than previously anticipated. Specifically, “CFRA forecasts that the global alternative meat industry will grow to $100 billion in sales by 2030, up from about $19 billion in 2018.” Estimates in 2019 pitted its current value at “only about $2.4 billion.”
• Consumers’ expectations for alternative meat offerings are expanding beyond the dinner table, and Beyond Meat has strong partnerships with several mainstream restaurants. These include fast food names like Dunkin’ Brands (NASDAQ:DNKN) and Yum! Brands’ (NYSE:YUM) KFC. Sit-in joints like Dave & Buster’s (NASDAQ:PLAY) and TGI Fridays are also on the bandwagon.
• Piggy-backing off of strong preexisting partnerships, use of its faux meats at McDonald’s (NYSE:MCD) locations in the U.S. would prove extremely profitable, according to UBS analysts. Its meatless meat is currently being tested in several McDonald’s locations in Canada.
• The company plans to expand into China in 2020, opening an opportunity for it to tap into a massive market of potential customers.
A Few Reasons to Be Bearish About Beyond Meat
On the other hand, competition in the fake meat space is getting fierce, and none of the company’s plans are guaranteed to work.
• The competition for Beyond Meat is intensifying as the meatless meat movement gains momentum and is increasingly adopted by both grocery chains and restaurants. Among its key competitors in grocery stores are Tyson Foods’ (NYSE:TSN) Raised & Rooted brand and Kellogg’s (NYSE:K) MorningStar Farms brand.
• Other alternative meat options like the “Impossible Burger” are making their names known at mainstream restaurants like Restaurant Brands International’s (NYSE:QSR) Burger King. They have also worked its way into lesser-known restaurant chains — like D.C.’s Founding Farmers, for example.
• Despite widespread brand awareness, Beyond Meat isn’t guaranteed partnership with McDonald’s. If this potential partnership falls through, it could give a significant advantage to one of its competitors.
• This can be particularly devastating in a space where flavor reigns supreme. If a massive fast food chain like McDonald’s adopts another alternative meat after its test run, then it could feed into a widespread narrative that Beyond Meat’s products are inferior. This would reduce shareholder confidence in its longer-term prospects.
Bottom Line on Beyond Meat Stock
Beyond Meat still has tremendous potential just based on its first-mover advantage alone. This could help solidify the bullish points made above by ensuring that its brand permeates customer mindshare for years to come. As the movement gains strength, so should Beyond Meat stock.
Or that’s what many people think.
The many challenges to this investment thesis imply to me that Beyond Meat requires extreme caution before consideration.
This is particularly true when you consider the inevitable rise of competition. According to market analyst Olivier Garret in an article for Forbes, its so-called first-mover advantage is overrated because “[c]ommodities that can be easily replicated compete on price. That’s a big problem for Beyond Meat because its products are expensive.”
The competitor landscape for alternative meats is already plentiful and many threats are from well-established companies, as outlined above. Furthermore, Garret points out, many of these competitors “can develop new products and bring them to market much faster than Beyond Meat. Perhaps most importantly, they charge less than Beyond Meat.”
Considering the challenges Beyond Meat stock faces in 2020 and beyond, it’s simply too soon to make a proclamation about its future, positive or negative.
Looking at the points laid out above, it’s clear why the stock is so volatile. There are plenty of reasons for optimism but also plenty of reasons for doubt. I expect this volatility to continue until Beyond Meat solidifies its lead over the competition. It could achieve this perhaps through success in its expansion in China or a deal with McDonald’s.
But until the likelihood of success in any of these catalysts becomes more certain, I’d refrain from enthusiastically slamming the buy button.
Robert Waldo has been a web editor for InvestorPlace since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.