Beyond Meat (NASDAQ:BYND) was one of the top performing initial public offerings of 2019. The maker of plant-based meat alternatives like the Beyond Burger has been generating massive amounts of buzz and signing contracts that have seen its products in grocery stores and the nation’s biggest fast-food chains. However, despite its success, Beyond Meat stock has experienced considerable volatility. BYND dropped to $66.22 shortly after its IPO, then spiked as high as $234.90, before ending 2019 just over the $75 level. It’s currently just under $110.
What’s the story likely to be for BYND in 2020? Will it continue to recover and regain the lofty heights it hit last year? Or will 2020 see another correction? The difficulty lies in predicting whether Beyond Meat will end up being a victim — becoming a boutique, small-scale player — in a booming market for plant-based protein that it helped to kick off.
Appealing to Health-Conscious Boomers
Beyond Meat products have been aimed squarely at millennials. A big part of the marketing of the current generation of plant-based protein has tied the product to the fight against global warming. The company uses NBA players as spokespersons and publishes data comparing the environmental impact of a Beyond Meat burger to that of a traditional beef burger (spoiler alert: the beef burger uses significantly more water, land, energy and produces 90% more greenhouse gas emissions). Beyond Meat is generating buzz, and millennials are amplifying it.
What about the baby boomers, though? The average American millennial household has a net worth of $100,800 compared to $1.2 million for the average baby boomer household. That makes things interesting, opening up the possibility of an even bigger market.
Nutritionist Lisa Richards is the creator of The Candida Diet, and has contributed to a range of publications including Huffington Post and the San Francisco Chronicle. She contacted InvestorPlace, writing that “the share of baby boomers who have tried plant-based meals is higher than any other generation.” She notes that although plant-based burgers may have more added salt than those made with ground beef, they have significantly less fat. This makes them appealing to those who are watching their heart health.
Having affluent baby boomers choose plant-based meat alternatives like Beyond Meat is good news for producers. As Richards points out, “Heart health is becoming a growing concern for this demographic and they typically have the means to financially support their interests, even diet related interests.”
The demand for plant-based protein appears to be there and having the relatively affluent baby boomers on board bodes well.
However, with demand comes competition, and that’s where things will get challenging for Beyond Meat stock. The primary competition that typically comes to mind is Impossible Foods; after all, Beyond Meat and Impossible have been neck and neck as startups looking to disrupt the meat industry. Impossible has won some big fast-food contracts, including Restaurant Brands International’s (NYSE:QSR) Burger King, which began selling an Impossible Whopper across the U.S. last year.
While Impossible is challenging Beyond Meat for headlines and fast-food trials, the real competition has begun to stir. Massive, multinational food production companies have taken note of the growing popularity of plant-based protein.
These giants are now ramping up production of their own plant-based meat products and despite playing catch-up, they have significant advantages over Beyond Meat. A company like Tyson Foods (NYSE:TSN) or Cargill — the latest to join the fray — is able to produce plant-based products at a scale that Beyond Meat simply can’t match. In addition, these long-established food companies are able to lock up suppliers and buy raw materials at lower prices. They also have massive distribution networks, and established relationships with restaurants and grocery chains.
Bottom Line on Beyond Meat Stock
Earlier this month, InvestorPlace contributor Tom Taulli pointed out some significant risks associated with BYND. In particular, growing competition and uncertainty about long-term consumer demand made the high valuation of Beyond Meat stock worrisome. Tom also noted that among investment analysts, the average 12-month price target for BYND was showing 9% downside.
Three weeks later, that math has changed: today’s share price and the downside target are virtually the same.
But with so much negativity plus broader market concerns, now’s not the time to buy Beyond Meat stock.
Brad Moon has been writing for InvestorPlace.com since 2012. He also writes about stocks for Kiplinger and has been a senior contributor focusing on consumer technology for Forbes since 2015. As of this writing, he did not hold a position in any of the aforementioned securities.