It’s fun to speculate — as long as you’re winning, that is. That’s a principle I try to bear in mind when considering newer companies and stocks that spike hard upon the initial public offering, only to fade and settle into a more realistic price range. It’s always a trade-off when we pass over more established brands in favor of “exciting” stocks. And indeed, unlike a household name such as McDonald’s (NYSE:MCD), there’s little safety or security when investing in Beyond Meat (NASDAQ:BYND) stock.
Still, the plant-based burger bet has paid off thus far as BYND stock has tacked on more than 50% year-to-date and famously secured a Canadian rollout of the company’s burgers in McDonald’s restaurants. Whether the meatless-meat trend can continue to make headway is up for debate, though, as consumer tastes are frustratingly fickle. I, for what it’s worth (not much, I’ll admit), expect the share price to remain volatile as America and the world decide whether consumers really like plant-based foods.
Perception versus Reality
Food-marketing experts know full well that, from a financial perspective, it doesn’t matter whether a product is actually healthy or not. What really matters is whether consumers believe that it’s healthy. A recent survey of 1,000 adults conducted by Food Insight found that “45% believed the plant alternative was healthier than animal meat, while 25% believed the plant alternative to be unhealthier.”
What type of consumer is drawn to plant-based foods? The aforementioned survey found that the target demographic is upper-class (“Those making over $120,000 were the most likely consumers (72%)”), relatively young (“those under 45 years of age being the most likely consumers (62%)”), educated (“Those with a college degree (62%) were more likely consumers than those without a college degree (37%)”), and vegetarian (77%).
With plant-based foods appealing to younger consumers (who may be perceived as more willing to take risks), Beyond Meat might encounter difficulty in gaining traction among the coveted baby boomer demographic. In an email to InvestorPlace, SophisticatedInvestor CMO Jack Choros explained how the mere perception of nutritive value might not be enough for the 55-and-over population:
The problem is Beyond Meat is high in sodium and not totally healthy. Older consumers of their products know this, especially if weight or heart issues are challenges for them. On the flipside, the demographic has lots of disposable income, which is always good for business. The question is, how will Beyond Meat manage both dynamics? Time will tell.
Priced for (Im)perfection
Mr. Choros has posed an excellent question and raised doubts as to whether Beyond Meat can capture the trust of older consumers. As I see it, collaborating with McDonald’s — which most BYND stock traders probably see as a win-win — could actually damage Beyond Meat’s reputation since McDonald’s isn’t exactly known as a health-food haven.
Even with the share price far below its July 2019 $235-ish peak, it’s tempting to view the McDonald’s association as already factored into the BYND stock price. InvestorPlace’s own Wayne Duggan opined that Beyond Meat stock is “priced for perfection” — a polite way of saying that all potential good news has already been priced in. I tend to concur with this assessment.
Expanding on this viewpoint, Duggan dug in with Piper Sandler analyst Michael Lavery’s good-news, bad-news missive: “We see a long runway of growth in the plant-based meat space, but we believe Beyond’s valuation has already priced in expected upside from McDonald’s distribution.”
Spoken like a true efficient-market theorist, Mr. Lavery is. But his contention rings true as the Mickey-Dee’s hype can only carry the BYND share price so far. If the other growth driver, then, is millennial risk-taking behavior (i.e., their willingness to ignore sodium and cholesterol content), I’m fully unconvinced that the plant-based hype can propel Beyond Meat shares much further.
The Takeaway on Beyond Meat Stock
Will the plant-based faux-meat market remain in hypergrowth mode, or is it just the flavor of the month? No one — least of all a lowly financial writer with god-awful eating habits — has the answer. With young consumers’ tastes being fickle and the potential of a McDonald’s partnership already likely fully priced in, though, I can confidently assure you that Beyond Meat stock will not be on my plate.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets. As of this writing, David Moadel did not hold a position in any of the aforementioned securities.