Beyond Meat (NASDAQ:BYND), which a pioneering developer of plant-based meat alternatives, is one of the top IPOs (Initial Public Offerings) from 2019. The return is roughly 163%.
Yet there has been considerable volatility with Beyond Meat stock. And yes, this is normally for newly public companies. Keep in mind that the shares fetched a high of $240 but are now at $117.
So what can we expect going forward? Is Beyond Meat stock at the buy level now?
Well, the company’s business is showing quite a bit of momentum. Beyond Meat has clear advantages, such as being an early player in the category. The company has also been extremely aggressive in pushing innovation and getting a lot of distribution (more than 58,000 outlets across retail and foodservice companies). Then there is the benefit of scale, which is essential for large customers.
In the latest quarter, Beyond Meat posted $92 million in revenues, up 250% on a year-over-year basis. There was even net income of $4.1 million or 6 cents per share, up from a net loss of $9.3 million or $1.45 per share in the same period a year ago.
Beyond Meat Partners
But here are some other highlights to note:
- Beyond Meat expanded its relationship with Dunkin Brands Group (NASDAQ:DNKN) to provide its sausage to more than 9,000 locations.
- Subway, which is the largest restaurant chain in terms of locations, is testing the Beyond Meatball Marinara sub.
- Beyond Meat has been making strong inroads in Asia. Consider that there is now distribution in Hong Kong, Vietnam, South Korea, Taiwan, the Philippines, and Singapore.
But of course, the most notable deal is with McDonald’s (NYSE:MCD), which is currently testing the PLT (plant, lettuce and tomato) burger.
This week, Restaurant Brands International’s (NYSE:QSR) Tim Hortons announced that it would no longer sell Beyond Meat’s burgers and sausages. Here’s what the company said: “We introduced a plant-based protein as a limited time offer and to test the interest of our guests in having this alternative available. Ultimately, our guests choose to stay with the meat option in their breakfast sandwiches.”
So might this be an ominous sign that the demand for plant-based meats may not be as widespread as believed? Perhaps so. The interest from consumers could have a lot to do with the enormous amount of buzz. Ultimately, it could be tough for habits to change.
In the meantime, the market is getting crowded. Sysco (NYSE:SYY), for example, has recently introduced its own plant-based meat offering. Keep in mind that the company is also a partner of Beyond Meat.
But other large food operators are entering the market. They include companies like Tyson Foods (NYSE:TSN) – it has created a separate brand called Raised & Rooted — Nestlé, Kraft Heinz (NASDAQ:KHC) and Conagra Brands (NYSE:CAG). No doubt, they have huge amounts of financial resources, powerful brands, and strong global distribution.
Bottom Line on Beyond Meat Stock
The valuation on Beyond Meat stock is definitely rich. Consider that the shares are trading at a whopping 31 times sales.
This is one of the reasons JPMorgan analyst Ken Goldman downgraded the stock. He noted: “Downgrading to neutral as 65% stock appreciation this month renders risk/reward more balanced.”
Other analysts are skeptical of the valuation as well. For example, the average price target is $106, which assumes 9% downside from current levels.
In other words, given the potential risks – like the rising competition and the uncertainty about the strength of consumer demand – Beyond Meat stock does look risky right now.
Tom Taulli is the author of the book, Artificial Intelligence Basics: A Non-Technical Introduction. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.