The red-hot rally in Beyond Meat (NASDAQ:BYND) stock hit a road bump in late February when the plant-based meat maker reported fourth-quarter numbers that topped revenue estimates but narrowly missed profit expectations, and included a tepid full-year 2020 profit guide. Up to that point, Beyond Meat stock was up about 50% year-to-date.
In response to the earning miss, the stock plunged about 20%.
Zooming out, this selloff is overdone. More than anything else, it offers investors an opportunity to buy a long-term winner at an attractive discount.
Here’s why.
Long-term Potential Is Huge
The long-term growth narrative supporting Beyond Meat stock remains robust.
Consumers everywhere are increasingly pivoting towards plant-based meat for a variety of reasons. Some don’t like the idea of slaughtering animals. Some don’t like the idea of an over-abundance of livestock contributing to global warming. Others don’t like the health risks of animal-based meat. Some are even doing it because going plant-based is fashionable these days.
These drivers of plant-based meat adoption aren’t going away anytime soon. Consumers are only becoming more socially, ethically, and environmentally aware. The more they do, the more they will pivot towards plant-based meat consumption.
Sure, it won’t be an all-at-once shift. But it’ll be gradual enough to warrant sustained huge growth for the plant-based meat market over the next few years, which presently accounts for just a fraction of the enormous $1.4 trillion global meats market.
Beyond Meat is doing everything right today to ensure that the company remains the face of the plant-based meat industry for a lot longer.
The company is investing in marketing to improve brand equity and consumer awareness. Beyond Meat is also rapidly increasing the number of food service and grocery partnerships it has, which will further cement the company as the plant-based meat company. Investments into research and development will also allow the company to sustain product quality and development advantages over new entrants in the space.
Connecting all the dots, then, Beyond Meat is positioned for massive growth over the next several years. Ultimately, that growth will power equally substantive gains in Beyond Meat stock.
Ignore Profit Issues
Beyond Meat’s fourth-quarter numbers included robust revenue growth which underscored that this company continues to grow with the booming plant-based meat market. But, of concern to some investors, profit trends were weak.
In short, these near-term profit issues should be ignored by long-term investors.
Beyond Meat reported a net loss in the fourth quarter. Analysts were expecting the company to report a net profit. Further, management guided for operating profit margins to be relatively flat year-over-year in 2020, amid “accelerated investments in marketing, R&D and international expansion initiatives”.
In other words, the numbers make it look like Beyond Meat’s profit margins have run into a wall. They have. For now. But purposely so and it’s not a cause for concern.
Important to note, this profit margin stagnation is entirely a result of Beyond Meat’s investments. This isn’t a revenue issue. Nor is it a gross margin issue. It’s an issue of operating leverage because Beyond Meat is pouring money into new growth initiatives.
That’s exactly what management should be doing right now. The plant-based meat trend today is gaining significant momentum among consumers across the globe. For reasons outlined above, it will only gain more momentum over the next few years. In order to keep growing with this booming market, the company needs to invest big today.
It’s a tried and true strategy for hyper-growth companies in hyper-growth industries. Invest big today. Secure leadership positioning. Reap the rewards of those early investments through explosive revenue and profit growth over the subsequent several years.
Beyond Meat is following this tried-and-true strategy. As such, long-term investors shouldn’t care much about operating leverage today. It will come, and when it does, it will power huge gains in Beyond Meat stock.
Bottom Line on Beyond Meat Stock
Under $100, Beyond Meat stock looks good. This is a $5 billion company disrupting a $1.4 trillion global meats market. Clearly, there’s lot of growth potential left here, and management is taking all the right steps to ensure that the company capitalizes on that potential.
So, buy BYND stock on this post-earnings dip. This is a classic case of near-term pain in a long-term winner.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been recognized one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.
