The whole stock market is in selloff mode right now thanks to the rapid spread of the Wuhan coronavirus and fears regarding the economic implications of the disease turning into a global epidemic. That includes shares of plant-based meat maker Beyond Meat (NASDAQ:BYND), which has seen its stock drop from $130 to $110 in the wake of the Wuhan coronavirus going global.
But recent coronavirus-related weakness in Beyond Meat stock actually looks more like a golden buying opportunity than anything else.
The bull thesis breaks down into four parts.
- Beyond Meat has limited exposure to Asia, where the coronavirus is having a huge impact on consumer activity. The company has robust exposure to North America and Europe, where the coronavirus is having very little impact on consumer activity.
- Beyond Meat has tremendous operational momentum at the current moment as consumer demand for plant-based meat continues to grow rapidly. Coronavirus fears won’t derail this momentum in Beyond Meat’s core markets.
- If anything, coronavirus fears will stoke fears about eating animal-based meat, and therefore only increase global consumer demand for plant-based meat.
- Coronavirus fears have plunged interest rates to fresh 2020 lows, providing further support for Beyond Meat’s rich valuation.
All in all, then, Beyond Meat stock shouldn’t be dropping on coronavirus concerns. But it has. And that means this is a buying opportunity.
Limited Coronavirus Exposure
Beyond Meat has limited near-term exposure to Asia, and therefore limited exposure to the adverse economic impact of the coronavirus.
In China and throughout many parts of Asia, the coronavirus outbreak has brought daily life to a halt. Consumers aren’t going out, shopping and buying burgers. Instead, they are staying in, meaning that companies with exposure to Chinese consumers will take a hit over the next few weeks to months.
Beyond Meat is not one of those companies. For the time being, this is a North America and Europe growth story. Across both those geographies, there have been less than 25 confirmed cases of coronavirus. Consumers are aware of it, and are acting cautiously. But, they are still going about their daily lives, and consume (i.e., buy burgers) with just as much as frequency as they have been over the past few months.
Tons of Operational Momentum
At present, Beyond Meat has a ton of operational momentum thanks to rising consumer demand for plant-based meat.
In the past few months alone, Beyond Meat has expanded its relationships with Yum Brands’ (NYSE:YUM) KFC unit, Denny’s (NYSE:DENN), McDonald’s (NYSE:MCD), Dunkin’ Brands (NYSE:DNKN) and many more. All of these companies are looking to introduce and/or expand their plant-based meat offerings amid rising consumer demand. At the same time, Beyond Meat has won a contract to start selling its products in Costco (NASDAQ:COST) stores.
Big picture — consumers are increasingly demanding plant-based meat options, and as they do, quick service restaurant chains and grocery stores alike are bulking up on their plant-based meat offerings. This trend will remain vigorous for the foreseeable future, regardless of the coronavirus outbreak and will support continued robust growth for Beyond Meat.
Consumers May Shy Away From Animal-Based Meat
In some ways, the coronavirus outbreak may actually accelerate the consumer shift towards plant-based meat consumption.
That’s because early research suggests that the Wuhan coronavirus originated from consumers eating animal-based meat (probably bat, but it’s still not confirmed). Consequently, the coronavirus will likely serve as a reminder to consumers of the potential dangers of consuming animal-based meat.
Granted, such dangers are far-fetched and highly unlikely. Most consumers in America aren’t eating bats. But, consumers always tend to overreact, and this overreaction is what could propel consumers in the U.S. and Europe to maybe order a plant-based burger instead of a meat-based one the next time they are at a restaurant.
Low Interest Rates Are Good for Beyond Meat Stock
In other ways, the coronavirus outbreak may actually benefit Beyond Meat in that it has pushed interest rates to new 2020 lows.
The 10-Year Treasury yield started the year out around 1.9%. But, fears surrounding the coronavirus have pushed investors into relatively safe bonds, which has dragged the 10-Year Treasury yield substantially lower. As of this writing, the 10-Year yield is below 1.6%, matching its lowest rate since early October 2019.
Low interest rates support big growth valuations, because among other things, they translate to a lower discount rate on future profits, which leads to a higher net present value for future profits (and big growth companies get all of their value from future profits).
Thus, the lower interest rates go, the more relatively attractive Beyond Meat’s valuation appears, especially considering the company is relatively isolated from the negative impacts that are causing yields to move lower.
In the big picture, Beyond Meat stock shouldn’t drop on coronavirus concerns. But it has. Mostly because investors are selling everything without regard to what they are selling.
This capitulation is an opportunity. Soon, coronavirus fears will fade. When they do, this stock will roar back to $130-plus levels.
As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.