And is BYND Now a Prime Buy-Low Candidate?
Last summer, Beyond Meat (BYND) was the hottest stock on the planet, having zoomed from an IPO price of 25 in May to a peak at 240 in July. But today the maker of the Beyond Burger is in the deep freeze, with Beyond Meat stock down 58% from its high despite a recent rebound.
What Went Wrong?
In brief, the stock was too popular!
Fundamentally, the company’s story is enormously attractive.
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Beyond Meat has become one of the fastest growing food companies in the U.S. by taking a bite out of the enormous $48 trillion global meat industry. The company’s mission is not just selling burgers and making money, though that is definitely part of the plan. Its mission is “to create the future of protein.” Specifically, its mission statement says, “By shifting from animal to plant-based meat, we can address four growing global issues: human health, climate change, constraints on natural resources and animal welfare.”
That’s a big mission, and it’s actually resonating with many consumers, who like the idea of getting healthy and saving the planet by eating more burgers!
However, when it comes to food, the bottom line is taste, and the scientists at Beyond Meat seem to have a winning recipe on their hands, based on the rapid pace of sales growth.
What’s in a Beyond Burger?
There’s protein, from peas, mung beans, fava beans, brown rice and sunflowers.
There’s fat, from cocoa butter, coconut oil, sunflower oil and canola oil.
There’s minerals, including calcium, iron, salt and potassium chloride.
There’s flavors and colors, from beet juice extract, apple extract and natural flavors.
And there’s carbohydrates, from potato starch and methylcellulose.
What’s Not in a Beyond Burger?
The Beyond Burger has no genetically modified organisms (GMOs), no soy and no gluten. And there’s no meat, although the company likes to use the word meat (as in plant-based meat), which definitely irritates people engaged in the original (animal-based) meat industry. As a word lover, it bothers me a bit, too—though I don’t lose sleep over it. Additionally, The Beyond Burger is vegan, kosher and halal. And the company even has one U.S. patent and 21 pending patent applications.
Of course, the company didn’t stop after creating the “perfect” burger. They’ve also got Beyond Beef, Beyond Sausage and Beyond Beef Crumbles, to be used in any recipe calling for ground beef. All these are available in thousands of supermarkets across the country.
And if you don’t want to do your own cooking, Carl’s Jr., TGI Fridays and Del Taco all offer Beyond Burgers, Dunkin’ has the Beyond Sausage Sandwich, Subway has the Beyond Meatball Marinara, and McDonald’s is testing the P.L.T. (Plant. Lettuce. Tomato.), made with a Beyond Meat Patty.
As for saving the planet, a University of Michigan study compared the environmental impact of the Beyond Burger with a ¼ lb. beef burger and found these differences: The production of the Beyond Burger uses 99% less water, generates 90% fewer greenhouse gas emissions, uses 93% less land and uses 46% less energy. Environmentally, it’s a clear winner.
Revenues at this point are fairly evenly split between retail and restaurant/foodservice. Third-quarter revenues were $92.0 million, up 250% from the year before and up 37% from the immediately preceding quarter—which is great growth! However, that 250% growth rate marked a mild deceleration from the previous quarter’s growth rate, which was 287%. Looking ahead, the company increased revenue guidance for 2020 to $265 million-$275 million, up from previous guidance of $240 million. (Fourth-quarter earnings are due out next week.)
EPS for the third quarter was $0.06, marking the company’s first profitable quarter, and analysts are now forecasting earnings of $0.39 for 2020, which is great, but not as great as previously expected—and now the stock is down.
Is Beyond Meat Stock a Good Buy Here?
Beyond Meat stock has two big problems today.
The first is valuation. With a current market capitalization of $6.7 billion, BYND has a price/sales ratio (PSR) of 29 (which is nosebleed territory, especially for a company dealing in physical products), and a forward price/earnings ratio of 272. You can buy a lot of great growth stocks for a lot cheaper.
The second problem is investor sentiment about the stock. On the way up (in those 13 initial magical weeks) every investor in the stock loved BYND because they all had profits! Selling pressure was minimal, so the buyers were in control.
But when BYND stock hit 240, buying pressure waned and sellers began to exercise their power (the first taking profits and the latter taking losses), and the sellers have in been in control ever since. In December, much of that selling was motivated by investors selling losers to offset their winners. Now that that force has ended, the stock is going up.
Has the buying power in Beyond Meat stock returned for good? My opinion is that this is unlikely, first because cooling-off phases from such stratospheric runs typically take more time (more than a year is common), second because the stock still has a sky-high valuation, and third because competition may come in (despite Beyond Meat’s patents) and erode the company’s early lead in the category.
Despite this, it’s worth keeping an eye on Beyond Meat stock, because the long-term prospects remain great. I like companies that can change the world.
Timothy Lutts heads one of America’s most respected independent investment advisory services. Each week, Tim personally picks the single best stock in his exclusive Cabot Stock of the Week advisory. Build your wealth and reduce your risk with the top stock each week for current market conditionsLearn More
*This post has been updated from an original version.