Beyond Meat Inc (NASDAQ:BYND) is a plant-based meat substitute manufacturer that is working to create tasty versions of all your favorite cuts.
Although the competing Impossible Whopper made headlines in 2019, the company has Beyond Beef and Beyond Sausage products in a variety of restaurant chains, including Subway, Dunkin, TGI Friday’s, Yard House, Disney World, Del Taco, McDonald’s KFC, Tim Hortons, and Carl’s Jr.
They certainly made a splash in the industry, but is Beyond Meat stock overvalued?
The company is continuing its aggressive expansion to provide vegetarian meat options, yet JPMorgan downgraded its stock in late September, after the company more than doubled in value since Covid-19 lows.
Let’s dive into the company to determine if it’s just a flash in the pan or will feed its profit-hungry investors.
Why Beyond Meat Stock Went Up?
Beyond Meat enjoyed several boosts that helped it recover from the initial market dip caused by the coronavirus. First, its first quarter results were up 141 percent from the prior year to $97.1 million.
This exceeded analysts’ expectations and showed how its growth was penetrating the market. Beyond Beef and Beyond Sausage continues finding their way on breakfast, lunch, and dinner menus at restaurants across the globe.
It helped that major meat producers were shutdown by the coronavirus pandemic. An estimated 20,000 American meat processing plant workers were diagnosed with COVID-19, and the meat industry is expected to lose around $20 million in 2020.
The average American eats over 200 pounds of meat each year, and replacing even half of that with plant-based substitutes could have a noticeable positive impact on the environment and our own health.
Its products are now available across North America, Europe, Australia, South Africa, Israel, UAE, Korea, Taiwan, and Chile. In April 2020, Beyond Meat targeted China and its population of 1.393 billion people as its next expansion area.
This gave investors confidence that it’s going to continue its aggressive expansion. And although China has a large population, it has relatively few vegetarians and vegans compared to a country like India.
Still, the news that Beyond Meat is successfully expanding into new markets is good. The chains it sells in have normalized the retail purchase of the brand’s meatless meats.
Should it gain mainstream acceptance in a country like India, it could have a hit on its hand. The country has a lot of cultural pressure toward vegetarianism but a hunger for real meat.
This faux meat substitute could be a uniting force in bringing both sides to the table, but the company financials are the only way to tell if that’s happening.
Beyond Meat Growth Rate Is Massive
Beyond Meat outpaced analyst expectations and company projections in 2019, ending the year with $297.9 million. This gave it nearly $100 million in gross profits, although it’s not paying dividends to investors.
While the company experienced massive growth in the first quarter, it was hit by the coronavirus shutdowns. Although panic shoppers bought out grocery stores, restaurants struggled to maintain sales during quarantines. This led to a slower second quarter of $99.1 million, a 47 percent increase over the previous year.
This doesn’t mean the company isn’t still increasing its revenue in its two channels, which are retail and food service. It experienced 156 percent growth across both sectors in the U.S. in the first quarter, with nearly $50 million coming from retail sales and $22.6 million coming in from food service in the U.S.
Another $24.5 million came from international sales combined. This is where the company is going to experience the most growth as the rest of the world gets used to meat substitutes.
Beyond Meat’s China expansion is heavily dependent on acceptance of three dishes it’s introducing through Starbucks. This partnership gives it a brand connection that should help it end the year strong.
Is Beyond Meat Valuation Too High?
As of the end of September 2020, Beyond Meat’s market cap is just under $10 billion, which is a 10x multiplier on its previous year’s gross profits.
Of course, it’s also experiencing growth this year that will close that gap, and it’s also trading for much less of a premium than companies like Tesla (NASDAQ:TSLA).
Unlike Tesla or even Amazon.com (NASDAQ:AMZN), the company’s market cap isn’t drastically different than it was in 2019. It’s not experiencing the same skyrocketing market price, and that makes it a more stable investment.
The company has very little debt on its books and it managed to create two products that fit across the full range of daily meals. And this only accounts for a small percentage of the American meat industry.
Over 26.3 billion pounds of beef were processed in the U.S. in 2017, according to the North American Meat Institute. This includes not just burgers and sausage, but also steaks, ribs, and other cuts.
Chicken is by far the largest market, and pork isn’t far behind. If the company can continue expanding into other meat-based proteins and nail the textures and flavors, this stock is poised to go to the moon.
Will Beyond Meat Stock Drop?
Just because it’s in a good place doesn’t mean Beyond Meat is impervious to market conditions. It has competition in Impossible Foods, Hungry Planet, and Next Level Burger.
In fact, there’s an entire industry pushing to replace Beyond on store shelves and restaurant menus. It remains to be seen if it has longevity in the market.
Also, the broader market is gearing up for a recession that’s likely to last for several years. Beyond could dip in value in the short term, but it’s a great long-term play because of the market it service.
Is Beyond Meat Stock Overvalued? The Bottom Line
Beyond Meat is an early frontrunner in making environmentally friendly meat substitutes from plant-based ingredients. In less than a decade, this market has been disrupted by Beyond and competitors who make ground beef and sausage patty substitutes that replicate the feel and taste of the real thing. Now its products can be found on store shelves and restaurant menus everywhere.
And it’s still aggressively expanding into more stores and more countries. Should it be successful in its quest, the world will rely less on resource-intensive meat harvesting. Although it’s trading at a premium, this stock has plenty of potential to grow into its market cap.
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.