Beyond Meat Stock Is Priced Far Beyond Its Fundamentals

Beyond Meat (NASDAQ:BYND) has long traded beyond its fundamentals. The plant-based meat substitute provider had sales of just under $300 million in 2019 and remains unprofitable. Yet the market cap for BYND stock on June 11 stood at nearly $9.5 billion.

BYND Stock Is Priced Far Beyond Its Fundamentals

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That’s partly because the company has a very high public profile. It’s also because companies that produce meat from animals, like Tyson Foods (NYSE:TSN), have been hit hard by the novel coronavirus.

This has let Beyond Meat grow quickly, and it just opened a production facility in Europe. It has also made forays into China.

But the stock is trading at 32 times annual revenues, with no profits. Food is a low-margin, capital intensive business. It’s not tech. Tyson, with $42 billion of revenue last year, is worth $22 billion. Tyson also makes meatless meat. So do Kellogg (NYSE:K), Hormel Foods (NYSE:HRL), Nestle (OTCMKTS:NSRGY) and Kroger (NYSE:KR).

The Real Shortage

Beyond’s valuation seems as removed from its industry as Tesla (NASDAQ:TSLA) is from General Motors (NYSE:GM) and with less reason.

Plant-based meat substitutes are a growing business, but the real shortage here is stocks worth trading. Beyond’s biggest competitor, Impossible Foods, remains privately held. Traders are eagerly awaiting its IPO, which could literally go “beyond” Beyond.

Meanwhile, traders looking for action have nothing but BYND stock. It hit a post-IPO high of almost $235/share nearly a year ago. It then fell to $67 in March, but has since more than doubled. CFRA analyst Arun Sundaram says it’s overdone. Beyond has been “excessively rewarded,” he writes, because of the processors’ problems.

There’s more to worry about beyond the speculation. Half of Beyond’s sales last year were to restaurant or food service companies. The traditional processors have deep relationships with the grocers who serve consumer markets.

Then there’s the price. Costco Wholesale (NASDAQ:COST) sells Beyond Meat patties, for about $9/pound, more than twice the price of regular hamburger. Even at that price, Beyond is not yet profitable. What happens when the competition heats up?

Beyond’s Real Value

It does make sense to pay a premium for companies that are scaling to serve a fast-growing niche.

Analysts with hockey stick graphs claim the market for plant-based meat could hit almost $28 billion in 2025. But that’s for all types of protein, from all types of sources.

While soy-based foods are due to dominate, Beyond Meat burgers are built on peas. They’re a specific formulation meant to appeal to people who regularly consume beef, which will still be a $383 billion market in 2025. Beef is the low-hanging fruit of the meatless meat market because it’s expensive to produce, requiring immense amounts of feed and water.

The projections, if accurate, show a long potential growth runway for Beyond, and for any company whose “meat” looks, cooks and tastes like meat. So far, Beyond Meat is just selling burgers and sausage. Impossible debuted a ground pork product at this year’s Consumer Electronics Show, but has yet to put it into production.

The Bottom Line on BYND Stock

Beyond Meat has a head start on this market, but the race has yet to be run.

In addition to meat companies, cereal companies and grocers, Beyond Meat also faces smaller competitors, like No Evil, who are already producing proteins that resemble chicken.

Having a hot stock, however, is a big help. At the end of March, Beyond Meat had less than $250 million in cash, but its equity represents a currency that can let it expand rapidly.

While Beyond Meat is a fine company, its success remains far from guaranteed. There are scaling issues, issues of competition and distribution and cost reduction to work on.

Just because a company has good trouble doesn’t mean it doesn’t have trouble.

Dana Blankenhorn has been a financial journalist since 1978. His latest book is Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, essays on technology available at the Amazon Kindle store. Follow him on Twitter at @danablankenhorn. As of this writing, he did not hold a position in any of the aforementioned securities.

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