Beyond Meat Stock Is a Strong Buy for Its China Expansion Potential

On a day when the broader stock market averages fell off a cliff, shares of Beyond Meat (NASDAQ:BYND) showed impressive resilience, rising on news that the company is finally entering the highly coveted and largely untapped Chinese market. Specifically, BYND stock rose more than 5% after the plant-based meat maker announced a partnership with Starbucks (NASDAQ:SBUX) in which Starbucks stores in China will sell its Classic Lasagna, Pesto Pasta and Spicy & Sour Wrap products.

BYND Stock Is a Strong Buy for Its China Expansion Potential
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This is a big deal.

China represents a huge, untapped opportunity for Beyond Meat. Much like Tesla (NASDAQ:TSLA) has generated huge early demand for its next-generation electric vehicles upon its arrival in China over the past few months, Beyond Meat will generate equally huge early demand for its next-generation plant-based meat products in China over the next few months.

In response to that huge demand boost, TSLA stock has flown higher. BYND stock will follow a similar path.

Ultimately, I see Beyond Meat stock running towards $130 over the next few months on the back of this deal. Here’s a deeper look at how that happens.

A Huge Opportunity

China represents a huge growth opportunity for Beyond Meat. How big? Just consider these simple facts:

  • China consumes about 28% of the world’s meat.
  • Total retail sales value of meat in China measured about $170 billion in 2016, and likely measures north of $200 billion today. By comparison, total retail sales value of meat in the U.S. measures less than $100 billion.
  • The plant-based meat market in China accounted for $910 million in sales in 2018, about 15% bigger than the U.S. plant-based meat market, which accounted for $794 million in sales in the same year.
  • In both markets, plant-based meat sales have been consistently growing at a double-digit pace, powered by increasing demand from younger consumers.
  • Plant-based meat penetration, as a percent of total meat sales, measures less than 0.5% in China and approximately 1% in the U.S.
  • Assuming both countries track towards 10% plant-based meat penetration in a decade (similar to the penetration rate for plant-based milk today), then the U.S. represents an opportunity of approximately $8.5 billion  for Beyond Meat, while China represents a near-$19.2 billion opportunity.

In other words, Beyond Meat’s China opportunity is more than twice as big as its opportunity in the U.S. From this perspective, Beyond Meat’s partnership with Starbucks isn’t just a big deal — it’s a game-changer for this company’s long-term growth trajectory.

Following a Tesla Trajectory

I believe that Beyond Meat will follow a Tesla-like growth trajectory in China.

This thinking derives from the similarities between the electric vehicle and plant-based meat trends.

Both are next-generation trends, with relatively low adoption rates today. But, both industries are growing at a steady double-digit pace, with those low adoption rates consistently rising every year. Both are environmentally positive products, with exceptionally strong demand from environmentally conscious young consumers. Improving technology in both industries is resulting in better consumer products and lower prices. Industry insiders and analysts see both the plant-based meat and electric car markets soaring over the next decade.

All in all, I see these two trends as very similar. More than that, Beyond Meat is the face of plant-based meat, much like Tesla is the face of electric vehicles.

Tesla just began its big entry into China over the past few months. What happened? Demand for Tesla vehicles surged. TSLA stock took off like a rocket ship.

Beyond Meat is just beginning its China journey today. What will happen over the next few months? Something very similar. Demand for Beyond’s plant-based meat products will surge. BYND stock will roar higher.

Beyond Meat Has Upside

The fundamentals imply that a big China surge could push BYND stock towards $130 over the next few months.

The numbers are pretty easy to follow. You have a $1.4 trillion global meats market. Plant-based meat presently accounts for just 1% of that market. But plant-based milk is up at 10%-plus penetration. Assuming plant-based meat follows a similar growth trajectory over the next decade and ramps up to 10% penetration, then the global plant-based meat market could be worth $150 billion in 2030 (assuming mild growth in overall meats sales).

Beyond Meat presently controls about 2.5% of the global plant-based meat market. Geographic expansion coupled with big food-service deals and strong brand equity should bump that market share up to 5% by the end of the decade. On a global sales pie measuring $150 billion, that 5% share should equate to $7.5 billion in sales.

Gross margins are at 35% and stable. The opex rate will come down to the low double-digit range thanks to positive operating leverage. Overall, you’re talking about a 20%-plus operating margin company with $7.5 billion in sales by 2030.

Doing the math on that, and making average assumptions on taxes and share count, that could realistically lead into $15 in earnings per share. Based on 20-times forward multiple and a 10% annual discount rate, that implies a 2020 price target for BYND stock of $130.

That’s exactly where I think this stock will head by the end of the year.

Bottom Line on BYND Stock

Beyond Meat is a long-term winner, with a ton of long-term growth potential. As Beyond Meat grows rapidly in China over the next few months, investors will be reminded of this huge potential. This reminder will spark increased investor demand for BYND stock, and send shares flying towards $130 by the end of the year.

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 rated 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, he was long BYND.

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