Beyond Meat (NASDAQ:BYND) stock has been one of the best performers in the market in 2020, with shares rising more than 140% year-to-date on the back of accelerating momentum in the plant-based meat megatrend.
On the heels of this enormous rally, bears have started to come out of the woodwork. Most recently, Bernstein downgraded BYND stock to Underperform, calling the valuation on Beyond Meat far too stretched for its own good.
Ostensibly, that does appear to be the case. Beyond Meat’s market cap hovers around $11.5 billion. Trailing twelve month sales sit at $400 million, meaning Beyond Meat’s stock sports a price-to-sales ratio of 29. America’s largest traditional meat producer, Tyson (NYSE:TSN), trades at 0.5-times trailing sales.
From that perspective, the “BYND stock is overvalued” thesis seems to make a lot of sense.
But that thesis misses the big picture, and the big picture here is that plant meat is the future of eating. Beyond Meat is the unrivaled leader in the plant meat space, and the company will sustain enormous growth over the next few years on its way to unseating Tyson as America’s largest meat producer.
Tyson’s market cap? Double Beyond Meat’s market cap.
So, from that more comprehensive perspective, BYND stock is not overvalued today. Instead, this stock remains a long-term winner that should be bought on big dips.
Here’s a deeper look.
Plant Meat Is the Future
There are a lot of consumer megatrends out there. Few get as much flack as the plant meat megatrend, mostly because there’s a lot of steak and burger lovers out there.
And I get it. I love a good steak and juicy burger as much as the next person. Probably even more. But, even as a huge meats lover, I’ve come to realize that plant-based meat is the inevitable future of this industry.
Because plant-based meat is currently and/or will soon be logically superior to animal-based meat in every single way. Simply consider:
- Plant-based meat is better for animals. It’s no hidden secret that in order to meet the world’s burgeoning meat demand, farmers have had to breed more cows, chickens and pigs than is normal, and stuff them into hardly livable conditions. For years, Americans didn’t care about the welfare of livestock. Now, for various reasons, they do. Plant-based meat improves animal welfare by reducing the need for so many cows, chickens and pigs.
- Plant-based meat is better for the environment. It’s also no hidden secret that an overpopulation of livestock is bad for the environment. Cows produce more greenhouse gases than cars, and are responsible for 9% of all human-induced greenhouse gases. More robust plant-based meat adoption will reduce the number of cows in the world, and thereby, reduce carbon emissions and actually be a powerful tool in combatting climate change.
- Plant-based meat production, at scale, is far cheaper. Today, making plant-based meat is quite expensive, because of huge R&D spend. But, that R&D spend will fall as companies perfect their lab meat production processes, and as those processes benefit from economies of scale. Indeed, at scale, plant-based meat production will be far cheaper than animal-based meat production, because the former is a repeatable process with cheap ingredients that can be performed continuously in a single lab, while the latter requires upkeep and maintenance of a huge farm with thousands of cows, chickens and pigs.
- Plant-based meat will inevitably be healthier than animal-based meat. One of the biggest knocks against plant-based meat today is that it’s not that healthy. That’s true. Current plant meat products stuff a bunch of weird stuff in them to make the product have similar taste and texture to animal meat. But the science here will only get better as plant meat demand surges. And, as that science gets better, plant meat products will only get healthier and healthier. Meanwhile, animal meat won’t get any healthier. At some point in the not-too-distant future, then, plant meat will become significantly and permanently healthier than all animal meat.
All in all, the writing is on the wall. For a myriad of reasons, plant-based meat is the undeniable future of meat consumption.
Of course, that’s great news for BYND stock.
Beyond Meat Is the Industry’s Leader
I’ve said it before and I’ll say it again. Plant-based meat is today, where electric vehicles were about a decade ago in terms of mainstream global disruption — and Beyond Meat is the “Tesla of the plant-based meat megatrend.”
That is, plant-based meat is marching towards global ubiquity, and Beyond Meat is the unrivaled leader in this space.
Beyond Meat’s unrivaled leadership comes down to a few things.
First, the company has huge technological advantages. Making plant-based meat isn’t easy, and Beyond Meat is much better at it than others in the space, as shown by its 50% repeat-purchase rate.
Second, Beyond Meat has distribution advantages. Beyond Meat is already in 118,000 retail and food-service outlets, and has signed big deals with McDonald’s (NYSE:MCD), Starbucks (NASDAQ:SBUX), Yum (NYSE:YUM) … and many, many more. That number is also growing by ~20% every quarter. So, by the time other players enter this space, Beyond Meat will already be everywhere — and in many of those places (like fast food chains) Beyond Meat will have exclusive deals in place.
Third, the company has a branding advantage. Beyond Meat has become the brand for plant-based meat in many consumers’ minds, mostly because of its broad distribution channels. So, if a first-time entrant into the plant-based market is looking for something to buy at a grocery store, they will almost certainly start off with a Beyond Meat product.
Thanks to these advantages, Beyond Meat is well-positioned to sustain and extend its dominance in the plant-based meat market as this market goes from niche to mainstream over the next decade.
As that happens, BYND stock will keep flying higher.
Beyond Meat Has Long-Term Upside Potential
By my numbers, Beyond Meat’s stock — even at today’s elevated levels — still has compelling long-term upside potential.
You have to remember, the global meats market that Beyond Meat is aggressively disrupting measures $1.4 trillion, and on the meat production side of the market, it’s essentially an oligopoly ruled by five major players, all of whom do $15+ billion in annual sales.
Make no mistake. Beyond Meat will be that big one day. The plant-based meat megatrend is simply too big and too powerful — and Beyond Meat too far head of competitors — for the company not to be a $15+ billion revenue company one day.
Simultaneously, because plant-based meat production is cheaper than animal-based meat production, Beyond Meat operates at significantly higher margins than traditional meat producers. Tyson’s gross margins hover just north of 10%. Beyond Meat’s gross margins are marching towards 40%.
Assuming economies of scale will help drive Beyond Meat’s opex rate down to a more normal 20% rate, then Beyond Meat one day projects as a $15+ billion company with 20% operating margins. That growth profile implies that $2+ billion in net profits is totally doable in the long run.
A simple 20X multiple on that implies a potential future valuation for Beyond Meat of $40+ billion. To be sure, it will probably take the company 10 to 15 years to get to that point. Still, using an 8.5% discount rate, that implies a net present value for Beyond Meat of anywhere between $12 billion and $18 billion.
Bottom Line on BYND Stock
Contrary to popular belief, BYND stock is not overvalued today, with a market cap of $11.5 billion. It’s only overvalued if you don’t look at the big picture. Once you look at that big picture, it becomes clear as day that this company has tremendous long-term upside potential in the plant-based meat megatrend.
So, while I don’t think it’s wise to chase BYND stock on the heels of this huge rally, I also don’t think it’s smart to cash out. Instead, let this rally cool off. Shake out the weak hands. Let the stock drop. Then, buy the dip, because long-term, this one is only going higher. Way higher.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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