Coming into 2020, one of my favorite stocks to buy was plant-based-meat maker Beyond Meat (NASDAQ:BYND). Through all the external difficulties — from the novel coronavirus pandemic to a 30%+ selloff of the stock markets at their bottom — BYND stock has outperformed. In 2020, the shares are up 104%.
While the stock’s valuation is somewhat of a concern at its current levels, the company’s positive attributes make the shares worth holding . Specifically:
- In the wake of the pandemic, people are shifting towards healthier foods. As a result, the already-robust pivot towards plant-based meat consumption will accelerate.
- Beyond Meat’s China business is on fire. The increased popularity of the company’s products in that market will greatly enhance its outlook.
- The company’s European business is also rapidly expanding, setting the stage for Beyond Meat to grow along with the consumption of plant-based meat on a global level.
- Beyond Meat’s jump into the value game with low-cost offerings at Walmart (NYSE:WMT) and Target (NYSE:TGT) should bring the plant-based meat trend into the mainstream.
- All things considered, BYND stock is not overvalued. The shares can climb considerably over the long-term.
At the onset of the Covid-19 pandemic, I made one fairly bold prediction: given rumors that the virus may have originated from a wet-animal market in China, many “on the edge” consumers would finally shift away from animal-based meat consumption and towards plant-based meat consumption. I thought they would do so based on the long-shot idea that they could reduce their chances of contracting a lethal virus by eating less meat.
It appears that many people may indeed be eating less animal meat in the wake of the pandemic.
Credit Suisse recently unveiled consumer survey data which “indicates that the number of people who say they are eating healthier foods has increased 20% since the start of the pandemic.” Plant-based meats are widely considered to be healthier than animal meats. One can reasonably deduce that the Covid-19 crisis has actually accelerated the awareness and consumption of plant-based meat.
This acceleration lays the groundwork for sustained, strong consumer demand for Beyond’s products over the next few years.
Rapid Expansion in China
Over the past few months, Beyond Meat has dramatically expanded its China business, ultimately laying the foundation for this market to grow rapidly for the foreseeable future.
Specifically, Beyond Meat has:
- Inked a deal with Chinese food distributor Sinodis to distribute its products to 4,500 wholesalers, restaurant chains and hotels in China.
- Expanded its existing partnership with KFC to China.
- Introduced a new partnership with Pizza Hut in China.
- Launched a new partnership with Starbucks (NASDAQ:SBUX) in China.
Through these various partnerships, Beyond Meat has embedded itself into China’s grocery and food-service supply chains. Over the next few months, Chinese consumers will start to see Beyond’s products at their local grocery stores, at their corner Starbucks stores and in various sit-down restaurants.
The increased proliferation of Beyond’s products in China lays the foundation for the plant-based meat maker to grow as rapidly in China over the next few years as it has in the U.S. over the past few years.
Beyond Meat has also rapidly expanded its presence in Europe. Just this month, Beyond Meat entered into a co-manufacturing agreement with Zandbergen to expand Beyond’s local production capabilities in Europe and increase the distribution of its products in Europe, the Middle East and Africa.
Beyond Meat’s overseas expansion positions the company to become synonymous with the plant-based meat market. That’s because Beyond will be the only player offering plant-based meat products globally.
When consumers think about electric vehicles, they think of Tesla (NASDAQ:TSLA). Soon when consumers anywhere picture plant-based meat, they’ll think of Beyond Meat.
I believe Beyond Meat will achieve that type of strong global brand equity much earlier than its peers. As a result, I think that the company will one day become the Tesla of alternative meat.
Beyond Meat recently launched a new value offering at Walmart and Target which should make the plant-based meat trend more mainstream.
Specifically, the company rolled out its new Cookout Classic burger 10-pack for just $16. That’s the lowest per-burger price for Beyond.
By reducing its prices, Beyond Meat should be able to convince consumers who are interested in its products to adopt them. Since a majority of Walmart and Target stores across the U.S. will sell the Cookout Classic, the transition from interest to adoption should be quite huge.
As a result, Beyond Meat’s numbers for the rest of the year should be boosted by significantly higher demand. Over the longer term, additional price reductions will only further accelerate the plant-based meat megatrend and Beyond Meat’s growth outlook.
Huge Long-Term Potential
Beyond Meat is a long-term winner with huge growth potential.
Because consumers are increasingly choosing products and services that are positive for the environment, broad and robust adoption of plant-based meat globally is inevitable. By the end of the decade, plant-based meats will account for 10%+ of the $1.4 trillion global meats market. Beyond Meat will leverage its branding, technology and partnership advantages to turn into the Tesla of that market and ultimately garner 5%+ market share on 40%+ gross margins.
If it reaches those milestones, Beyond Meat can realistically generate $20 of earnings per share by 2030.
Based on a 20-times forward earnings multiple and a 10% annual discount rate, that equates to a 2020 price target for BYND stock of $170.
The Bottom Line on BYND Stock
Beyond Meat is a long-term winner, with huge, non-cyclical tailwinds, a ton of momentum and large growth catalysts on the horizon. Investors should not sell a high-quality stock like that unless its valuation is out of whack.
But the valuation of BYND stock today is not out of whack. As long as that remains the case, investors should stick with the rally of BYND stock.
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 as one of the best stock pickers in the world 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.