Everyone needs to eat, and that makes food a great investment. When the pandemic hit, innovative food companies leveraged technology to survive. Two companies that did this in different ways are Beyond Meat Inc (NASDAQ:BYND) and Domino’s Pizza, Inc. (NYSE:DPZ).
But which is the better value between Beyond Meat vs Domino’s Pizza stock?
Beyond Meat perfected the texture of plant-based ground beef and sausage. It’s working on others, but these plant-based meatless options grew in visibility in both grocery stores and restaurants.
Meanwhile, Domino’s Pizza used a food delivery model long before DoorDash and others entered the market. The company leveraged its sleek online ordering system to grow its leading market share during the pandemic’s economic shift.
Which of these food-based investment opportunities will leave your portfolio full?
The Bull Case for Beyond Meat
Beyond Meat is an industry disrupter. Alongside Impossible Foods, it popularized plant-based protein by creating a meat-like texture. It also penetrated the market by getting included on the menu of restaurants like Carl’s Jr., Del Taco, Dunkin’, TGI Fridays, and Del Taco.
Not only that, but it reached a three-year deal to provide the vegan meat option to both McDonald’s (MCD) and Yum Brands (YUM). This gives bulls reason to be excited about the sales prospects during the first half of the 2020s. In fact, the company is rated as overweight by a consensus of analysts.
And the company is working to lower prices while meat prices rose over the past year. This put plant-based protein prices closer to animal-based protein prices. That has analysts believing the company could sustain its growth while outmaneuvering the competition.
However, the pandemic kept restaurants fighting to stay alive, and rivals are gearing up to take Beyond’s place on both menus and grocery shelves. It needs to fight to maintain its current growth trajectory, and it won’t be easy.
The Bear Case for Beyond Meat
There’s already a price war happening in the plant-based meat space.
Because it’s still an early trend, manufacturing costs are on their way down. But that also makes it more accessible for competition beyond just Impossible. Even major meat manufacturers like Tyson have plant-based options.
And that’s not the only meat alternative – lab-grown (cultured) meats are growing in research and development spending. It’s currently cost prohibitive, but that could change over the next 20 years. That would make cultured meat using real animal cells another market alternative that could create waves for Beyond.
On top of this, the company already trades for a large multiple over trailing 12-month sales. This puts a hefty premium on what’s sure to be a volatile stock over the next decade. And that’s enough to give bears reason to look beyond the company for another food-based investment.
Why Buy Domino’s Pizza Stock?
Domino’s is one of few restaurants that grew revenues during the pandemic. In fact, it benefited from the closure of restaurants around the country because it already has a socially distanced business model. The company uses what’s called ghost kitchens to enable easy takeout and delivery, which made it a familiar option in scary times.
With the effects of the pandemic waning, Domino’s is still maintaining its value. Not only did it survive the pandemic, but it continued expanding its retail footprint, adding several hundred stores during the height of the municipal closures.
DPZ share price has probably already priced in its technology advantage, but it may still has room to inch higher for the fiscal year.
It’s a $15 billion business that uses its own delivery network, showing the flaw of third-party delivery services. That’s because the company doesn’t make any money from delivery – it never has in over 60 years of business, according to executives.
Not one single third-party delivery service has ever returned a profit. Grubhub, Uber Eats, and DoorDash all operate at a loss. This means Domino’s could stay the market leader for years to come, although there are risks.
Risks of Investing in Domino’s Pizza
The biggest risk to investing in Domino’s Pizza today is the possibility of overpaying. DPZ share price is already trading near its intrinsic value of $400 per share, and that leaves very little room left for investors to gain returns.
On top of this, the company faces increased competition as restaurants reopen and adjust to delivery models. Thanks to third-party delivery options, more restaurants than ever can deliver a hot meal to your home. This increases the volume of rival pizza and sandwich shops, the two big food categories that Domino’s delivers.
Even bulls agree the company has about one to two percent revenue growth left for the year. The economic recovery puts additional pressure on existing sales, while the pandemic slowed expansion. It’s a tough market that includes rising food costs and shrinking margins.
And the company needs to include more vegan options to keep customers happy. It’s one of the few restaurants that hasn’t adopted either Beyond nor Impossible’s plant-based meats. This puts it behind the curve on the biggest food trend of the decade.
Although the risks are slightly outweighed by the rewards, expect Domino’s to be a volatile stock over the next ten years.
Beyond Meat vs Domino’s Pizza Stock: Conclusion
Beyond Meat and Domino’s Pizza are two very different food-based technology plays. Domino’s uses its technology to deliver hot pizzas and subs to a broad network of rural areas worldwide. Beyond creates replacements to popular meat options, like ground beef and sausage.
Each technology gives the respective company a lead in its industry niche. This helped them both to recover from the pandemic and maintain growth during the “recovery economy.”
Investors for either of these companies is likely to see long-term growth. However, pricing will be volatile in the short term, so be prepared for that if you choose to jump into either investment.
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.