Early June saw Beyond Meat (NASDAQ:BYND) stock reach new highs for 2020. Year-to-date, BYND stock is up an eye-popping 106%.
As we get ready to finish the first half of the year, investors are wondering if now may be a good time to put their faith in the group. The plant-based food maker is one of the stocks that gets a lot of short-term trading attention.
Long-term investors should expect choppiness ahead. Yet, if you have a time horizon of two or three years, then you may consider buying the dips in BYND stock.
Quarterly Earnings for Beyond Meat
The California-headquartered company posted better-than-expected first-quarter earnings in early May. Net revenue was $97.1 million, an increase of 141% year over year. Net income was $1.8 million, or 3 cents per share, compared with a net loss of $6.6 million, or 95 cents per share, a year ago.
BYND also provided number for outlets as of March 2020. They were:
- U.S. retail (around 25,000)
- U.S. food service (around 34,000)
- International retail (around 18,000)
- International food service (around 17,000)
Earnings showed that Beyond Meat is increasing its restaurant partnerships both in the U.S. and internationally, including Denny’s (NASDAQ:DENN), Dunkin’ Brands (NASDAQ:DNKN), McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX) and Yum! Brands’ (NYSE:YUM) KFC unit as well as privately held Carl’s Jr. and Subway. It made its first entry into mainland China through the Starbucks China partnership.
The quarterly results showed that Beyond Meat has been executing well. However, management warned that it saw a decline in sales at the end of March as the novel coronavirus pandemic forced many restaurants around the country into closure.
Following the release of the results, investors showed their renewed faith in the company. Since then, BYND stock has increased from $120 level to the current price of about $154.
Long-Term Catalysts for BYND Stock
Meat alternatives are either “made from plants (plant-based) or artificially replicated in a lab (cell-based).” Recent research led by the Department of Plant Sciences in the University of Saskatchewan, Canada, highlights that “the trend towards consumption of plant-derived foods is on the rise worldwide.”
Many scientists and analysts agree that the discourse around reduced consumption of animal-based meat is likely to gather pace in this new decade. And the number of people switching to or at least trying meatless, plant-based protein foods will likely increase. Therefore, Beyond Meat is possibly at the right place at the right time.
Therefore, the future looks bright for Beyond Meat and hence BYND stock. For example, in recent days, the company announced that it is now partnering with Sinodis, a leading imported food distributor in China. The group will distribute Beyond Meat products via its network of over 4,500 wholesalers, restaurants, and hotels.
China is the world’s most populous nation. And investors were pleased. The announcement pushed BYND stock to new highs for the year.
2 Potential Short-Term Headwinds
Profit-taking: So far in the year, BYND stock has been flying high. If you were brave enough to buy into the share price around $48 in late March, your return in less than three months would be about 225%.
BYND stock short-term charts are currently overbought. Although a stock’s price can stay overbought for quite some time, it’s also be timely to expect some profit-taking.
In the coming days, there may be a decline toward $135 level. Such a drop in the BYND stock price would give long-term investors a better entry point into the shares.
BYND stock typically reacts to news headlines, specific to the company as well as the broader markets. Therefore, investors should expect short-term choppiness in the shares.
Expensive valuation: Beyond Meat’s forward price-earnings ratio currently stands at 714. That is expensive by any fundamental measure. At the end of March 2020, it was around 133.
Its price-sales ratio is over 23.2. By comparison, the price-sales ratio of the S&P 500 index is around 2.1. BYND stock’s premium valuation is in part due to its place as the sole pure play public company in the plant-based food category.
However, it is important to remember that the maker of plant-based burgers is also facing increased competition from traditional food companies as well as new entrants into the industry. For example, products by privately owned Impossible Foods is getting consumers’ attention. It has now launched a direct-to-consumer sales website.
Similarly, Cargill, one of the largest agri-food businesses in the world, recently invested in the development of plant-based proteins. And in case, there is another IPO in the coming months, then some of the buzz surrounding BYND meat may indeed disappear.
The Bottom Line on BYND Stock
Beyond Meat will continue to ride the increasing plant-based food consumption tailwinds over the next several years. And that will likely mean substantial gains in revenues and profits, translating into a higher BYND stock price.
However, in the short run, investors should embrace for volatility with possibly a downward bias in the shares. In case of a sentiment change in the broader markets or the industry, BYND stock’s valuation numbers may become simply unsustainable.
Therefore, if you currently hold paper profits in BYND stock, you may want to ring the cash register. Alternatively, you may also consider hedging your position with covered calls. For example, Aug. 21 expiry ATM calls would decrease portfolio volatility and offer investors some downside protection. It’d also enable investors to participate in a potential up move following the earnings release.
Tezcan Gecgil has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all 3 levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation. As of this writing, Tezcan Gecgil did not hold a position in any of the aforementioned securities.