If you were to ask most of my colleagues at InvestorPlace, I’m confident you’d find very few takers for Beyond Meat (NASDAQ:BYND). That’s despite Beyond Meat stock falling nearly 50% over the past month.
In late December, I wondered whether Beyond Meat stock was worth $250 or $25. At the time, it was trading around $75. I recommended that investors who could handle above-average volatility would find it to be an excellent entry point.
Over the next six weeks, as I wrote in February, it gained more than 57%, rising to $129. And then the coronavirus kicked in. It’s now trading around $61.50 with plenty of volatility to be had.
Should you buy at these levels?
Beyond Meat Stock Is a Good Speculative Buy
Although Beyond Meat’s initial public offering was priced at $25 on May 1, 2019, in spectacular fashion, it finished first-day trading up 163% at $65.75. By the end of May, it was over $100. Since then, it’s been as high as $239.71, which BYND hit at the end of July. For most of the fall, it traded in a range between $75 and $80.
Then, inexplicably it jumped to $129 before the coronavirus and mixed fourth-quarter 2019 results brought its stock back to earth. As I write this, it is trying to hold around $61.
In Beyond Meat’s short history as a public company, $75 has become a healthy support level for its stock. Should current uncertainty break that support level decisively, it could fall back to its $45, 52-week low it hit on its first day of trading.
In terms of covering analysts, four have a buy on its stock at the moment, with 12 rating BYND a hold, two are underweight, and one is an outright sell. The average target price is currently $105.28, providing a potential upside of 71%. If you take out the $130 target-price high and $50 target-price low, you get an average target of $95.81, or roughly 56% upside.
New Products Coming
On the news front, it did announce Mar. 11 that it is rolling out its latest product, the Beyond Breakfast Sausage, to stores at the end of March. Available in classic and spicy flavors (my choice), the company claims that its sausage will have considerably less saturated fat, sodium, and calories compared to a leading brand of pork sausages.
At this point, it’s hard to know who’s being more accurate in their public relations: plant-based meat producers or the honest-to-goodness meat producers.
All I know is that Beyond Meat’s products taste great. My wife takes some of their Beyond Beef Crumbles and combines it with Beyond Burgers, to make a fantastic meatloaf. Very tasty.
But I’m getting off track.
Last year was a big year for the company as its net revenues grew almost 240% to $298 million, up from $88 million a year earlier. In 2020, it expects net revenues to grow by 64% to 71%, to between $490 million and $510 million. Assuming a growth rate of 30% over the five years between 2021 to 2025, Beyond Meat should hit close to $1.9 billion by then.
In terms of adjusted EBITDA, management expects those profits to be about the same as in 2019, which were $25.3 million. If the company could get to 2025 and be making a GAAP profit, I don’t see why the Beyond Meat stock price wouldn’t be higher than $75.
Currently, Beyond Meat trades around 10.5-times sales. Let’s assume it drops to 5x sales by 2025. At $1.9 billion in revenue, we’re talking about a market capitalization of $9.5 billion or slightly more than double what it is today. That’s a 14.9% compound annual growth rate over the next five years.
It’s not a spectacular return, but it’s still pretty darn good.
Restaurant Sales Will Take a Hit
From a speculative viewpoint, taking into account the reality that fewer people are probably going to buy Beyond Meat’s products at restaurants in the near future (due to the coronavirus), offset by possible increases in grocery stores, I don’t think it’s going to kill Beyond Meat’s business.
Also, I do think any revenues lost over the next three to six months related to the coronavirus can be quickly recaptured later in 2020 or 2021.
From a speculative perspective, I wouldn’t have a problem buying at these levels, but only with a half position, leaving some dry powder should it fall into the $60s or further. For the rest of us, I’m not sure many people are going to be able to handle the huge daily swings in the price of the stock.
The volatility is brutal right now. I’d stay on the sidelines when it comes to BYND, at least until the full ramifications of the coronavirus are known.
However, long term, I do like it.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.
