Beyond Meat Investment Thesis

Beyond Meat Investment Thesis: Sustainable methods of food production have captured the world’s imagination of late, and finding alternatives to resource-heavy meat farming is seen as a big part of the solution to the problem of climate change and ethical living.

It’s in this effort that companies have thrown their own talents into the ring to help arrive at an answer to these pressing concerns. One of these is Beyond Meat, a plant-based food producer disrupting the traditional meat markets, and starting a revolution in customer habits along the way.

Beyond Meat Market Share

The global meat market in 2020 was estimated to be worth around $1.4T, with plant-based meat products making up about $14B of that total. Analysts have predicted that plant-based meats will increase that share tenfold to $140B by 2029, representing a full 10% of the entire meat market by that time. 

This expansion of plant-based meat products into the traditional meat products market is obviously good news for Beyond Meat, as it has grown its own market share of alternative meat products from 2.3% in 2016 to 21.4% today.

The company has lost some share of the market to Impossible Foods recently, dropping from a high of 24.5% in July 2020 to its present current value.

Does Beyond Meat Stock Have A Moat?

The number of companies operating in the plant-based meat sector right now is approaching saturation level. This amount of competition might be worrisome for some businesses, but fortunately for Beyond Meat it has a unique set of advantages in the space that doubles as its own economic moat.

The company is insulated from its competitors in two main ways. 

First, Beyond Meat uses its own proprietary technology and manufacturing processes to create its meat-free products. And it does this, unlike its closest rivals, without the use of genetically modified organisms (GMOs).

Instead, it can replicate the core structure and taste experience of real meat using a method that mimics the textural properties and 3-dimensional orientation of the required cut, along with layering and trapping certain ingredients, such as fats and water, into the matrix of the food that give the finished product a succulence and authenticity similar to the real thing. 

Impossible Foods, on the other hand, uses a genetically modified ingredient called heme to achieve the same kind of thing.

However, given that some customers have a negative perception of GMO foods, and the likelihood that those same customers are also the kind to gravitate toward plant-based meat products, Beyond Meat has established itself as the trusted choice for health-savvy consumers.

Second, Beyond Meat has a keen focus on innovation and continued product development. It is able to operate a state-of-the-art innovation center run by a team of highly regarded scientists, where they have access to chemical, analytical, and microbiology labs, a pilot plant, and a dedicated R&D application hub.

Indeed, Beyond Meat is distinguished among its peers by the amount it invests in R&D as a percentage of its net revenue.

What this attention to innovation means in practice is that Beyond Meat can research and formulate a large portfolio of products, and maintain a solid pipeline of those products going out to market. This cements its industry dominance, and assists in its stated goal of driving down the retail price of its offerings in a bid to undercut traditional real meat foodstuffs.

Are Beyond Meat Revenues Growing?

The rapid growth of Beyond Meat has excited investors the last couple of years. Anyone who bought in with the IPO in 2019 will have enjoyed gains of around 600%.

But this break-neck expansion might show signs of slowing down. On paper, the company is still posting an enviable CAGR of 132% for net revenues from 2017 through 2020, and earnings for key distribution channels such as the U.S. Retail sector are up sequentially year-on-year.

However, on a more granular level, Beyond Meat’s numbers are looking like they might be underperforming slightly. Between 2018 and 2019, the company grew revenues by 239%, and yet this slowed to just 37% between 2019 and 2020.

Furthermore, net revenues for the U.S. Food Service and International sectors both dropped last year by an average of around 14%. This is a marked reversal in trends as those sectors grew by 230% and 480% respectively from 2018 to 2019.

In fairness, the drop in the Food Service and International channels were directly attributable to the COVID-19 pandemic, and despite this, the company still managed to grow revenue overall while reinvesting in infrastructure, innovation, marketing and strategic partnership goals.

Beyond Meat Management Quality

The team driving Beyond Meat is led by Ethan Brown, who is both CEO, President and founder of the company. 

Ethan has had an interest in environmental concerns and clean energy since he began his career at the National Governors’ Center for Best Practices, and has worked with companies developing hydrogen fuel-cells and a new approach to fuel reformation policies.

Most importantly, perhaps, it was Ethan who had the insight to realize that it wasn’t just going to be committed vegans and vegetarians that would propel the shift to plant-based alternative diets, but also the so-called flexitarians and curious meat-eaters who were looking for something a little healthier but also tasty too.

Trifecta Of Risks To BYND Stock

The trifecta of risks threatening Beyond Meat’s current business model is the loss of technological edge, crowded competition, and an adverse turn in future consumer behaviors.

Although any one of these could damage Beyond Meat’s operational efficiency, a perfect storm of all three could see the worst-case scenario manifest in which the company’s margins are depressed to the point where its enterprise is no longer profitable or viable.

Ethan Brown has already admitted that margins were down in 2020 due in part to pandemic-related headwinds, and coupled with the firm’s aim to slash retail prices, there wouldn’t be much room to maneuver if things took a wrong turn.

Beyond Meat Investment Thesis: Conclusion

To justify its continued share price rise, Beyond Meat must address its declining growth figures as soon as possible. Quarterly growth rates are stagnating, and for a business in a particularly fertile growth-industry this is not a good portent for the future.

But catalysts abound for Beyond Meat, and the company still remains the market leader in both market share and innovation. Share prices have been dropping for a while, and that might suggest an entry point for those looking to take a position in the stock.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.