What’s the next move for Beyond Meat (NASDAQ:BYND) stock? The plant-based meat giant saw its shares make a comeback after big declines from its 2019 highs. Starting 2020 around $75 per share, Beyond Meat stock hit prices above $130 per share within a month. The reason? A short squeeze, along with excitement over potential partnerships with McDonald’s (NYSE:MCD) and other large restaurant chains.
But in recent weeks, the hype has been taking a cooler. After the company’s earnings release late last month, investors have realized shares may have gotten ahead of themselves. And, along with downward pressure from recent stock market action, shares have fallen back below $100 per share.
Is this a sign Beyond Meat stock is heading lower? Or is now a great time to “buy the dip” and ride this story stock to new highs? I remain in the bearish camp. And while the “fake meat” giant could see rapid expansion thanks to the growing appeal of “plant-based” diets, the company doesn’t hold the franchise on this food innovation.
Meanwhile, competitors like Impossible Foods are cutting their prices. Food processing giants like Cargill and Nestle (OTCMKTS:NSRGY) are also getting into plant-based “meat” in a big way. Add in a “priced to perfection” valuation, and it’s tough to justify buying Beyond shares at today’s prices.
That said let’s dive in and see how Beyond Meat stock could head lower even as “fake meat” increasingly becomes what’s for dinner.
Why Beyond Meat Stock Could Head Lower
The company may have beat estimates with its fourth quarter 2019 numbers. But analysts are starting to give a more critical look at future upside. The company’s margin guidance came in lower than expected. Add in the potential need to reduce prices in order to boost demand, and it’s clear future upside is no slam-dunk.
Overall, the bull or bear case for Beyond Meat stock isn’t based on whether plant-based diets become the norm. But, lower-than-expected adoption of “fake meat” is another negative factor for the company.
As InvestorPlace’s Chris Markoch put it March 4, “the math doesn’t add up.” Citing multiple surveys, Markoch makes a strong point that Beyond’s total maximum market may be smaller than anticipated. Conversely, if “fake meat” takes off in a big way, competition will heat up. This will affect margins, and make it even tougher to reach profitability.
With these challenges becoming top of mind, shares are heading back to Earth. Yet, that’s not to say the stock is getting back to a more reasonable valuation.
Simply put, Beyond Meat shares remain overvalued. Despite being in a highly competitive, commodity business, the company trades like a software-as-a-service (SaaS) stock. Beyond Meat stock’s current forward price-earnings (P/E) ratio is 188.7.
In comparison, that’s above and beyond forward multiples for major branded food companies:
- Conagra Brands (NYSE:CAG): forward P/E of 14.1
- Mondelez (NASDAQ:MDLZ): forward P/E of 21.5
- Nestle: forward P/E of 22.5
Yes, it makes sense a fast-growing company trades at a higher multiple than established players. Sales are expected to climb from $511.5 million in 2020, to $751.3 million in 2021. However, that doesn’t mean shares are going to climb another 50%-plus this year. BYND stock could easily start treading water, as the company grows into its valuation.
Shares May Rebound to Past Price Levels
I continue to be bearish on the company. But, I also concede that Beyond Meat stock has a pathway to further upside. It’s hard to predict whether recent trials with McDonald’s, Dunkin’ Brands (NASDAQ:DNKN), and other major chains will parlay into a major partnership deal.
Nonetheless, this potential catalyst gives me caution regarding future downside in Beyond stock shares. Inking a headline-making deal would help shares bounce back. And a McDonald’s deal could easily send the stock back to $120 per share and above.
Another potential upside catalyst is the company’s recently announced move into Asian markets. With the coronavirus from China on everybody’s mind, this looks risky. Especially as optimism in a V-shaped recovery starts to wane. However, Beyond doesn’t plan to start producing in Asia until the end of 2020. And by then, we’ll have a clearer picture of how Asian economies will recover post-coronavirus.
While Catalysts Remain, It’s Time to Sell
Beyond Meat stock may have seen a decent rebound after crashing in late 2019. However, changes in the overall market — coupled with underwhelming guidance — does little to indicate near-term upside potential. With valuation still at sky-high levels, shares could fall materially lower and still be overvalued.
Granted, the company’s growth prospects justify a premium to established branded food companies. But, with major players now betting big on “fake meat”, it’s going to be tough for the company to improve its gross margins.
Catalysts may still be in motion, but the hype over Beyond Meat stock is over. So with markets trending lower, sell this “story stock” before it hits lower levels.
Thomas Niel, contributor to InvestorPlace, has been writing single-stock analysis for web-based publications since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.