By Liz Moyer and Christiana Sciaudone
Investing.com — Beyond Meat Inc (NASDAQ:) has soared with the wider embrace of plant-based “meat” products.
They are a far cry from the particle board vegetable-based products of old. Beyond and its competitors are capturing the attention of younger consumers, and inviting big competition from established giants in the food industry.
But shares are trading in the stratosphere, leading many to wonder whether Beyond can keep up the trend.
Investing.com’s Liz Moyer argues the bull case for Beyond Meat (no pun intended), while Christiana Sciaudone writes that it can’t go on forever. This is .
The Bull Case
If teenagers love it, it must be good, right?
Research by Piper Sandler (NYSE:) found that young people were increasingly on board with plant-based food products, prompting analysts at the firm to raise their price target on Beyond Meat earlier this week.
The maker of meatless meatballs, packaged ground meat and sausage products has rallied 157% this year and is well above its May 2019 IPO price of $25. Analysts are expecting Beyond to report full year 2020 profit of 6 cents a share, up from a loss of 29 cents a share last year, and on their way to forecasted profit of 52 cents a share for 2021, according to Zacks.
Net revenue for the second quarter rose 69% from last year. To respond to the Covid-19 crisis, Beyond repackaged its commercial products for sale to consumers during the quarter, incurring costs that pushed the bottom line to a $10 million loss for the period.
The company pointed out that it continued to introduce new products during the crisis, including its value pack called the Cookout Classic, which lowered the cost of its burgers from nearly two-times that of real meat patties to about 20% more per pound.
“Though the Cookout Classic only reached stores in the last 2 weeks of the second quarter, it accounted for 16 points of the year-over-year volume growth in our U.S. retail business,” the company said. “We look forward to continuing to serve our consumers and customers alike as we all hope for a resolution to the COVID-19 pandemic.”
Meatless meat has grown to a big industry, with sales estimated to grow 15% annually for the next few years to reach $27 billion in 2025. It has attracted competition from newcomers like Impossible Burger to established food giants like Tyson as consumers adapt to a healthier lifestyle.
Piper recently asked teens about plant-based meat to gauge consumer preferences. Of the respondents, 47% said they either eat it now or are open to consuming plant-based meat. The research firm also found that interest in plant-based meat rises in younger people, indicating a big base of potential future growth as teenagers grow older and establish their own households.
Beyond’s burgers are supposed to look, cook and satisfy appetites like a traditional beef burger. The company says its meatless meat is made from simple, plant-based ingredients without GMOs, soy or gluten.
It has since branched out to meatballs and breakfast sausage links, which are sold through grocery stores across the U.S., including Kroger (NYSE:), Albertsons, Sprouts, Harris Teeter, Wegmans, and Whole Foods. And it is poised to start production in China at the end of the year.
The company has also expanded a relationship with Walmart, tripling the number of sales outlets for Beyond Burger from 800 locations to more than 2,400 stores. Beyond says its products are available at 112,000 stores in 85 countries.
The Bear Case
Beyond Meat is trading at a material premium to such big wigs as Netflix (NASDAQ:) and Tesla (NASDAQ:). Need I say more?
Beyond Meat is beyond reason, no matter how much one might like plant-based meat.
The stock has rallied this year, and shares spike every time the company publishes a press release — even if it’s old news.
The company is barely eking out profits. Since it went public in May 2019, it has reported just two quarters of actual earnings per share — 3 cents and 6 cents. For the second quarter, the most recent data available, Beyond Meat reported a loss per share of 16 cents — that’s 8 times worse than expected by analysts. Granted, it beat on revenue, but it took in a grand total of $113.34 million for the three months.
The company is valued at $7.81 billion. Let that sink in.
And don’t take my word for it. Check out the analysts that cover Beyond Meat. Shares have two buy ratings, seven holds and six sells. Since analysts hate to ever give sell ratings, those six have more weight than it would initially appear.
So, what’s their beef with Beyond Meat?
In August, Goldman Sachs (NYSE:) reiterated its sell rating with foodservice declining more than 60% from a year earlier.
That same month Jefferies (NYSE:) maintained a hold rating on the stock, even while boosting the price target, because of valuation, according to StreetInsider.
Beyond Meat trades on an enterprise value to sales basis fairly in line with Freshpet (NASDAQ:), but at a material premium to Monster Beverage (NASDAQ:), Netflix, Tesla and McCormick (NYSE:), “all either higher-growth food & beverage companies or sector-specific disruptors,” Jefferies analyst Rob Dickerson said.
In September, JPMorgan (NYSE:) downgraded the stock to underweight from neutral, citing Impossible Foods’s increasing presence on shelves and many restaurants not adding menu items.
“We think the stock is ahead of itself,” JPMorgan analyst Ken Goldman said, according to StreetInsider. Shares are up 30% since that report was published. Imagine what Goldman thinks now.
Going back to the magic of the press releases, every time something is published, it is almost guaranteed that the stock will rise, no matter the content.
Let’s take the recent example of a Sept. 29 announcement that Beyond was doing a major expansion with Walmart (NYSE:), with products being offered at more than 2,400 locations versus the previous 800. Chief Executive Officer, Founder and President Ethan Brown had let the news slip on the Aug. 4 earnings call. No matter. That press release helped shares jump 14% the day it came out, almost two months later. On old news. Something doesn’t smell right here.