Beyond Meat Is About as Far From a ‘Sure Thing’ as You Can Get

Moving past all the excitement surrounding Beyond Meat (NASDAQ:BYND) stock, it looks like the light at the end of the tunnel might actually be coming from an oncoming truck. If that’s the case, it could derail the heartwarming story of a promised land filled with endless rivers of faux beef patties. That’s not to say that there aren’t good reasons for Beyond Meat’s success this year. But, rather, I question whether some of the bullish arguments are a little too good to be true.

BYND Stock Is About as Far From a 'Sure Thing' as You Can Get

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The company has proven itself to be among the heroic stocks on Wall Street amid the novel coronavirus crisis. In fact, BYND stock is up over 20% year to date, while the S&P 500 is down over 10%.

Although it wasn’t able to completely evade virus-related challenges, it has been on a mostly upward trajectory since the start of April. Many investors are hyped about the meatless meat company, which debuted on the Nasdaq just a year ago.

There are certainly plenty of reasons to justify the hype.

For example, the company recently announced that its products would debut in Starbucks (NASDAQ:SBUX) shops in China, with rapid expansion expected. This is yet another big step for Beyond Meat, which has enjoyed product sales in fast food joints like McDonald’s (NYSE:MCD) and YUM! Brands’ (NYSE:YUM) KFC, along with many sit-in restaurants.

Add to that the fact that real meat producers like Tyson Foods (NYSE:TSN) are dealing with supply chain issues, and it’s likely that many will pick up faux meat products amid the shortage. This should help bolster grocery store sales for Beyond Meat.

Of course, this will likely be a temporary boost. It’s unlikely to endure at the same rate after meat supply-chain struggles diminish. Carnivores and omnivores will undoubtedly return to the real thing when it’s available. This isn’t the same kind of story with companies like Netflix (NASDAQ:NFLX), where once you go cordless, you never go back.

This is food we’re talking about — both taste and cost matter a whole lot.

New Questions Leach Long-Term Optimism

Even with these positive happenings, there’s still reason to question the long-term case behind BYND stock.

Some of these reasons include the following:

  • The hype behind its debut in China might not lead to the significant success many expect. At least not as quickly as they think, since “Beyond Meat will likely have to compete on the basis of price alone.” It lacks the same brand-name recognition it enjoys in the U.S. and soy products are less “taboo” in China.
  • Although the company will benefit from an expected meat shortage, it’s not the only player in the game. Key competitor “Impossible Foods … announced recently that its namesake burgers will be available at hundreds of new grocers.” This will likely take a bit of shine out of its grocery store gains in the months ahead.
  • More than half of Beyond Meat’s revenue in 2019 came from restaurant sales. With the impact of social distancing on the restaurant business still to be determined, the strength of this revenue stream in 2020 is much less certain.
  • As Motely Fool writer Brian Stoffel points out, the company hasn’t demonstrated that it has a moat to secure its long-term position as a leader in the alternative meats industry. As it stands, other than brand recognition, Beyond doesn’t have many distinguishing factors that its competition can’t replicate. Until then, it is much less of a sure thing despite the advent of the meatless meat movement.

There are more potential headwinds to consider; however, these ones stick out the most and counter the recent bullish narratives. But there’s another issue that keeps coming to mind whenever I mull over whether it’s a good stock to buy. As I alluded to earlier, both taste and cost are very important when it comes to food, and I believe at least one of these will become a bigger issue for Beyond Meat in these trying times.

Beyond Meat Is Still a Luxury

By now, I probably come off as some sort of meatless meat hater. After all, I am known to eat a 40-ounce steak on occasion (just ask my coworkers), and meat is still a part of my diet (although my consumption of it has been gradually declining over the past year). But my skepticism towards BYND stock here is not based in personal tastes. Rather it’s based on some basic math and nutritional objectives.

Yesterday, I was in Harris Teeter, looking in the meat aisle, which much like before, was relatively barren. And that’s when I stumbled upon a pair of Beyond Meat Sausages. This time, I was much more tempted to try the company’s product (I actually like faux meat in this format), but I went to a different aisle loaded with legumes, and bought a few packs of lentils instead.

According to the store’s website, four of the sausages sell for $6.99, and the packs of legumes I bought were $2.99 each (though sometimes they go on sale for much less, and this organic product is more expensive than standard lentils). While the sausages yield four servings, the two packs of lentils (for an equivalent price) yield 18 servings. Each has the same caloric profile — 190 calories — and the protein is a little higher in the sausages, while the lentils have much more fiber.

Oh, and the lentils have much less fat too.

The point is, I can get more than four times as many meals out of the organic lentils for the same price than I can with a pack of the faux meat sausages, all of which are still plant-based.

The irony of the recent meat supply chain scare is that it still manages to illuminate a point I’ve made before: “Beyond Meat is a luxury.”

Even when you throw real meat out of the picture, when you compare it to other plant-based sources of protein, its offerings are still very expensive. That’s something a lot of bulls are overlooking when they see the massive spike in alternative meat purchases. People aren’t exactly thinking things through right now (and they’re going to the next “logical” conclusion, a fake meat alternative), but when they see their wallets start to empty and have hope of real meat back on the shelves in higher frequency, I’d expect the hype to falter.

Right now, I’d see this as a chance for Beyond Meat to mitigate the losses from its lack of restaurant sales, but the extent of that mitigation is currently speculative at best, as is the extent of the damage to its revenue from the coronavirus. We’ll find out more when the company reports earnings on May 5.

The Bottom Line on BYND Stock

For me, that’s what Beyond Meat will probably always be. A luxury. I’ll probably end up buying its sausages on occasion now that I’ve spotted them in my go-to grocery store. But I’ll likely never see them as a staple in my diet.

Despite the rapid rise in meatless meat sales, I don’t think many other people will see it as a staple either. If there were a strong indication that the adoption of vegetarianism/veganism — diets that expel meat completely — were actually on a significant rise, I might think otherwise. But that isn’t the case.

I have no doubt that many more people will start buying faux meat from Beyond and other providers, but I doubt that it’ll reach the same dietary inclusion as whole foods that have stood the test of time. At least, if it does, it won’t be any time soon.

But that’s often how many of the bullish arguments for BYND stock are framed, as though meatless meat is going to become a widespread staple within a few years. Even if it did become more commonplace, who’s to say that Beyond will still be a leader at that time? This is particularly questionable given Stoffel’s in-depth analysis, which exposes its lack of a moat to secure itself.

And yes, I do think the placement of its products in Starbucks is a big deal — I think it will have an even greater appeal there than some fast food joints. But I don’t think it’s enough to escape the reality of high prices in tough times.

I sound harsh here, but whatever your stance is, I’d like to echo InvestorPlace Contributor Will Ashworth’s sentiment on the stock (he’s been much more bullish on it in the past then I have):

“The last time I wrote about Beyond Meat was in March. At the time, I recommended that investors wait until the full ramifications of the coronavirus were felt before betting on its stock. I still feel that way as I don’t think the first-quarter results will be as bad as some analysts believe. That said, I think you’ll be able to buy it for $75 within the next few months.”

It’s certainly possible that Beyond will surprise us with more positive news when it reports earnings in a few days, but even so, it’s probably best to stay on the sidelines a little longer. Although there are good reasons to think the company will be at the forefront of the meatless alternatives movement, which could certainly accelerate in a post-coronavirus world, things are far too uncertain to take a gamble on right now.

Robert Waldo has been a web editor for InvestorPlace since 2016. As of this writing, he did not hold a position in any of the aforementioned securities.

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