Beyond Meat (NASDAQ:BYND) stock is up 59.50% year to date. It’s a stellar performance that puts the plant-based meat maker in rarefied air alongside the likes of Tesla (NASDAQ:TSLA) and Virgin Galactic (NYSE:SPCE).
As is the case with any name that has notched an almost 60% gain in less than two months, Beyond Meat stock requires further examination. While no one that owned the stock on Dec. 31 is complaining about its performance to start 2020, the fact is the bulk of the gains were confined to a small window in January. But to be fair, the shares are up 5.10% over the past week.
Last November, when the company delivered its most recent earnings report (the next one comes on Feb. 27), Beyond Meat was actually profitable as the company said it earned 6 cents per share on sales of $92 million. At least that checks the profitability box. At its current multiples, the company needs to grow sales and earnings at rapid rates to justify valuations that are stratospheric.
The stock trades at a staggering 270x forward earnings and 30x sales. At those levels, market participants will use any misstep to punish the stock. Remember, Beyond Meat stock plunged 22% following its last earnings report, one that was actually pretty good.
The current consensus estimates call for Beyond Meat to earn 42 cents a share this year on sales of $495.15 million. At current multiples, markets will repudiate 41 cents per share. There’s a good chance 43 or 44 cents won’t do the trick for Beyond Meat bulls either.
Growth Potential, But Competition Lingers
Plant-based meats (PBMs) isn’t a market where Beyond Meat enjoys a monopoly. It’s one where there’s fierce competition because traditional food producers, such as Conagra (NYSE:CAG), Kellogg (NYSE:K) and Tyson Foods (NYSE:TSN), understand that more consumers want healthy alternatives and more folks want to do right by the environment.
“Although Beyond Meat is a pioneer in the meat-like PBM market, competition is set to intensify over the next year as numerous competitive offerings hit the market,” said Morningstar analyst Rebecca Scheuneman in a note. “Until we have better visibility into the endurance and strength of Beyond’s brand, we assign the firm a no-moat rating.”
Peter Ricchiuti, clinical finance professor at the A.B. Freeman School of Business at Tulane University, says PBM “growth prospects are enormous,” but he adds that rubber needs to meet the road when it comes to Beyond Meat’s ability to grow earnings.
“Ultimately, the trajectory of the stock will be a function of the company’s earnings power,” Ricchiuti said in an email to InvestorPlace. “So investors will ‘bet on the come’ for a while, but eventually, this excitement and growth needs to appear as earnings per share in order to get all but the most speculatively money managers into the stock.”
Bottom Line on Beyond Meat Stock
Can Beyond Meat be a winner in the PBM arena? Yes, but it’s going to need some help in the form of more big-name partnerships, such as McDonald’s (NYSE:MCD) or a rumored to be lingering deal with Starbucks (NASDAQ:SBUX). Investors have a penchant for reacting favorably to such news and these deals are revenue-boosting mechanisms.
The near-term catalyst or headwind — depending on how it plays out — is the Feb. 27 earnings report. There is some evidence to suggest that options traders have been leaning bullish on Beyond Meat and if the company beats and raises guidance next week, that could spark a massive short-covering. This is especially true given that 35% of Beyond Meat stock is out on loan to bearish traders.
As of this writing, Todd Shriber did not own any of the aforementioned securities. He has been an InvestorPlace contributor since 2014.