The chart for Beyond Meat (NASDAQ:BYND) continues to look like a roller coaster. Beyond Meat stock fell dramatically even after an earnings report that showed a significant rise in fourth-quarter revenue.
Some of the loss was related to the coronavirus-infused selloff, as was the March 2 rally that helped BYND ass more than 7% for the session. Unfortunately for the plant-based meat alternative, the trend is towards lower highs and lower lows.
Why are investors skeptical? Beyond Meat’s revenue growth is impressive, and it’s not easy to dismiss. Clearly, plant-based foods are getting a lot of attention. And Beyond Meat is getting favorable press, including a recent arrangement with Starbucks (NASDAQ:SBUX) to create a breakfast sandwich item using Beyond Sausage.
Revenue Is Only Part of the Story
However, margins are down and the company failed to maintain profitability for two straight quarters (although it was significantly higher on a year-over-year basis). Plus, the company’s own forward-looking guidance said that they were expecting its adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) forecast for 2020 would be in line with 2019.
None of those numbers are that bad, particularly when you consider Beyond Meat is a first mover in a still-developing industry. But it points to the bigger problem of competition. Beyond Meat has done a good job of lining up partnerships, but they may have a problem retaining them.
McDonald’s (NSYE:MCD) announced it would increase the number of stores that would sell its “PLT” (Plant-Lettuce-Tomato) offering. However, they also announced that they were not beholden to Beyond Meat as a sole supplier. No worries, Impossible Brands announced that they did not have the capacity to meet McDonald’s needs. The problem is neither does Beyond Meat, for now.
The company will have to make a significant investment in production to keep up with that demand. If they’re not unsuccessful, it opens up the door to competition. If they are successful, it’s a drag on profits in the short term. That’s a lose-lose proposition.
The Math Doesn’t Add Up
Beyond Meat faces a simple math problem. At first, this was just an opinion I held. In a recent article, I cited a study that said 18% of consumers were actively trying to eat plant-based food. My takeaway was that not all of that 18% would be choosing Beyond Meat products. A recent survey helps to confirm my opinion.
A survey of 3,500 adults by Piper Sandler produces the following two data points. The first is that 62% of respondents answered “no, and I am not interested in it” when asked if they consumed plant-based meat. The second data point is that of the 38% (I assume) that would eat plant-based meat, 32% had no brand preference, and only 9% chose Beyond Meat as their preferred brand.
Now, according to Beyond Meat, the company has seen a 46% repeat purchase rate among retail consumers. But this is why you have to be so careful with statistics. 46% of what?
For instance, 38% of 3,500 is 1,330. So you could say in a best-case scenario 46% of 1,330 or 612 out of every 3,500 adult consumers are potential repeat purchasers.
Beyond Meat Has a Small Moat
I’ve been skeptical of Beyond Meat for a number of reasons. One reason was that I felt it didn’t have a unique selling proposition. If all plant-based meat products were roughly the same, why would there be a reason to choose one over another. But I admit, this was a mistaken belief on my part.
As it turns out, Beyond Meat deliberately uses pea protein and does not use soy protein. I have no idea how this may impact taste, but recent information shows that soy may have some unwanted, and potentially harmful, side effects. So Beyond Meat has a small moat by being able to say they use pea protein instead of soy protein.
The Bottom Line on Beyond Meat Stock
In the end, I’m still a skeptic of Beyond Meat stock. I will admit I have not tried the product. So you can disqualify my opinion for that if you wish. But if the Piper Sandler survey is accurate, I’m not alone. And furthermore, of those that have tried it, less than 10% are brand loyal to Beyond Meat. That’s with or without pea protein.
The basic problem for Beyond Meat stock is a numbers game. As plant-based proteins gain acceptance, more competitors will enter the market. And that will put pressure on margins and profits. The harsh reality for Beyond Meat is that plant-based food is becoming a commodity faster than they would like.
And that’s a competition that Beyond Meat can’t win.
As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.
