Shares of plant-based meat producer Beyond Meat (NASDAQ:BYND) have almost doubled since its 2019 IPO. Since October, however, Beyond Meat stock has slumped 30% while other “green stocks” have continued to rocket ahead.
Does BYND’s pullback signal a buying opportunity, or are more losses on the way?
Make no mistake: Beyond Meat sits at the heart of a once-a-generation shift in consumption. Over the past decade, U.S. demand for carbohydrates and sweeteners has plummeted. In its place, American consumers have turned to meats, particularly chicken. And that has been an incredible turn of events for plant-based protein companies. Demand for “meatless meat” spiked 264% between April-May, and analysts believe the market should more than triple by 2027. These growth figures should make any investor salivate.
But with established companies falling over themselves to produce plant-based meat alternatives, how will Beyond Meat stand out? Here are the three things you need to know before taking the plunge.
Bull Case No. 1: Increasing Demand
Hear me say this: fifty years from now, people will look back at today’s meat processing industry the same way we look at the smog-filled skies of 1970s Los Angeles. They will ask themselves, “what were they thinking?”
In the 1970s, the average car managed just 13.5 miles per gallon. American consumers enjoyed the benefits of powerful cars, but air pollution would damage people’s health for generations. Today, the meat industry faces similar issues. Farmers raise chickens with breasts so large that a third of broilers can’t walk for the last days of their lives. And people suffer too. Countless studies have linked meat consumption to increased heart disease and diabetes.
It doesn’t take a die-hard environmentalist to see the investment opportunity here. For years, Americans have largely avoided bland-tasting veggie burgers and other meat alternatives. But several companies have finally created plant-based meats that actually taste quite decent.
And that’s all it took.
With better-tasting products, companies like Beyond Meat and Impossible Burger have grown sales from zero to over $30 million per month. It wasn’t that consumers weren’t humanitarians at heart — they were just waiting for an acceptable meat alternative to come along.
And growth is expected to continue. Currently, only 6% of Americans consider themselves vegan. That’s up from 1% in 2014. And with better meat alternatives in the works, investors can expect this figure to keep rising.
Bear Case No. 1: Competition
There’s one wrinkle to Beyond Meat stock, however. In the Consumer Packaged Goods (CPG) industry, there is one concept that always rings true: it’s HARD to create a lasting lead.
That’s because it takes time to build up your brand. Back in 2015, Amplify Snack Brands landed on its one-hit-wonder, Skinny Pop popcorn. The company rocketed to $17 in 2016 before crashing to $6 as other companies jumped in on the packaged popcorn craze. And just like Amplify, Beyond Meat has a lot of competitors to deal with:
- ConAgra (NYSE:CAG): Gardein
- Hain Celestial (NASDAQ:HAIN): Yves
- Hormel (NYSE:HRL): Happy Little Plants
- Impossible Foods (private): Impossible Burger
- Kellogg (NYSE:K): Incogmeato
- Kraft Heinz (NASDAQ:KHC): Boca Foods
- Kroger (NYSE:KR): Simple Truth
- Maple Leaf Foods (OTCMKTS:MLFNF): Lightlife Foods
- Nestle (OTCMKTS:NSRGY): Sweet Earth
- SYSCO (NYSE:SYY): Simply Plant-Based
- Tattooed Chef (NASDAQ:TTCF): Buffalo Cauliflower Burgers
In Q3, Beyond Meat missed Wall Street revenue estimates by a whopping 28%. The company blamed Q2 stockpiling and a decrease in eating out. But competition was also to blame — health-food companies from Hain Celestial to Tattooed Chef have been aggressively growing their vegan-based foods portfolio.
Bull Case No. 2: Great Product, Great Execution
So, can Beyond Meat beat back the competition? There’s still hope. That’s because there’s a second truism in the CGP industry: if you have a significantly better product, that gives you time to build a lasting lead.
Chobani, for instance, still holds about a third of the American Greek yogurt market despite competition from heavyweights Danone (OTCMKTS:DANOY) and General Mills (NYSE:GIS). And in beverages, Coca-Cola (NYSE:KO), PepsiCo (NASDAQ:PEP) and Dr. Pepper (NASDAQ:KDP) still make up 86% of the U.S. carbonated drink market.
Fortunately for Beyond Meat, its meatless proteins are also pretty good. A taste-testing round table at the New York Times called the vegan patty “juicy with a convincing texture.” Reviewers at Epicurious agreed with the assessment, calling it “tasty with a nice level of salty juiciness.” And its quality is no accident. The company spent millions perfecting meatless alternatives by raising money from individuals like Bill Gates and Leonardo DiCaprio.
Many of its competitors, meanwhile, are stuck with burgers that taste like stale veggie patties.
“The Boca Original Vegan Meatless Burger was so pale that it could have passed for a chicken or tuna patty,” reported Epicurious. And the “Dominex Eggplant Burger was nice in theory, but not in practice. The texture was reminiscent of Chicken McNuggets.” Ouch.
While rivals struggle, BYND has wasted no time in trying to build a lead. The company has partnered with top distributors, including DOT Foods, United Natural Foods (NYSE:UNFI) and Sysco (NYSE:SYY), to get its products on store shelves nationwide. And to counter rival Impossible Food’s partnership with Burger King, the BYND has teamed up with McDonald’s (NYSE:MCD) to create the McPlant, a plant-based burger. As the company grows, investors should hope to see founder/CEO Ethan Brown eventually replace himself or fill BYND’s ranks with experienced management and marketers.
Will Beyond Meat Stock Hit $250?
Still, it won’t be an easy road for Beyond Meat stock. Privately owned Impossible Food edges out BYND’s products in many taste tests. And BYND itself faces growing pains as a public company — from hiring experienced managers to managing growth. Fortunately, the company has not just one, but THREE aces in the hole to push its stock to $250 and beyond.
1: Smaller starting size. The company’s $8.75 billion market cap is still half of either Tyson’s (NYSE:TSN) or Conagra’s (NYSE:CAG). And compared to Nestle’s (OTCMKTS:NSRGY) $322 billion market cap, Beyond Meat’s valuation looks like a rounding error.
2: Chicken alternative. Americans consume almost twice as much chicken as beef, but no company has yet managed to create a compelling chicken alternative. Beyond Meat’s head start in chicken could help it break into the market.
3: International expansion. America only makes up 15% of world meat production, meaning BYND could either expand abroad or license its products to an international producer.
Manage its growth well, and Beyond Meat could become the next 1,000% stock. Stumble, and companies like Impossible Foods and Hain Celestial will eat its lunch. So, anyone hungry?
On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.