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May 10, 2020, 8:22 a.m. EDT

Beyond Meat’s stock is wildly overpriced — even if business expands perfectly

Margins need to fatten up at the same time that competition is growing

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By David Trainer , Kyle Guske II and Matt Shuler


AFP/Getty Images
Beyond Meat is just one of many meat alternatives at the supermarket.

Beyond Meat had a wild first year as a public company. After pricing its IPO at $25 , the stock rose to around $235 in just three months. Earlier this year, the stock dropped to a low of around $54. It jumped 26% on Wednesday after beating consensus earnings expectations for its first quarter and now trades around $126.

Given the stock /zigman2/quotes/211617595/composite BYND -0.81% now trades nearly three times higher than its 52-week low, investors must ask themselves whether Beyond Meat can justify the expectations baked into its stock price. Or are those buying the stock simply falling for the hype and ignoring significant issues facing the maker of plant-based meats?

I believe Beyond Meat’s valuation is beyond expensive. The future profit growth baked into the current stock price assumes the company faces no competition and will achieve 150% market share of the entire meat substitute market while also increasing margins.

Profitability is headed in the right direction

Most know that Beyond Meat has had massive revenue growth (one reason the stock soared post-IPO). Since 2017, the company has grown revenue by 202% compounded annually. More importantly to any bull argument, the company’s core earnings improved from a loss of $14 million in 2017 to a profit of $6 million in 2019. The firm’s core earnings margin improved from -42% to 2% over the same time. However, improved profitability has not slowed the firm’s cash burn. Free cash flow ( FCF ) was -$107 million in 2019 after -$72 million in 2018.

Figure 1: Beyond Meat’s core earnings and revenue since 2017


Sources: New Constructs and company filings

Competition is plentiful and has competitive advantages

Despite Beyond Meat’s early success, the alternative meat industry is quickly filling with competitors. Tyson Foods /zigman2/quotes/201117502/composite TSN +0.54% , the largest meat producer in the U.S., sold its stake in Beyond Meat in April 2019 and just a few months later announced the launch of its plant-based food brand Raised & Rooted. Some of the largest consumer food brands have followed suit.

Below is just a short list of some of Beyond Meat’s competitors:

• Incogmeato by Morningstar Farms, owned by Kellogg /zigman2/quotes/209631250/composite K +0.42%

• Simply Plant-Based Meatless Burger, a Sysco /zigman2/quotes/205335941/composite SYY +2.48%  exclusive product

• Simple Truth plant-based meat, owned by Kroger /zigman2/quotes/206215053/composite KR +0.60%  

•Sweet Earth Brand, owned by Nestlé /zigman2/quotes/210131093/composite NSRGY +0.10% /zigman2/quotes/208115528/delayed CH:NESN +0.26%  

•Gardein, owned by Conagra Brands /zigman2/quotes/200394144/composite CAG +0.99%  

/zigman2/quotes/211617595/composite
US : U.S.: Nasdaq
$ 131.51
-1.07 -0.81%
Volume: 3.48M
Aug. 7, 2020 4:00p
P/E Ratio
N/A
Dividend Yield
N/A
Market Cap
$8.18 billion
Rev. per Employee
N/A
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/zigman2/quotes/201117502/composite
US : U.S.: NYSE
$ 62.80
+0.34 +0.54%
Volume: 2.65M
Aug. 7, 2020 4:00p
P/E Ratio
12.82
Dividend Yield
2.68%
Market Cap
$22.44 billion
Rev. per Employee
$330,628
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/zigman2/quotes/209631250/composite
US : U.S.: NYSE
$ 69.52
+0.29 +0.42%
Volume: 1.32M
Aug. 7, 2020 4:00p
P/E Ratio
21.92
Dividend Yield
3.28%
Market Cap
$23.84 billion
Rev. per Employee
$398,441
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/zigman2/quotes/205335941/composite
US : U.S.: NYSE
$ 57.80
+1.40 +2.48%
Volume: 4.45M
Aug. 7, 2020 4:00p
P/E Ratio
21.88
Dividend Yield
3.11%
Market Cap
$29.32 billion
Rev. per Employee
$890,245
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/zigman2/quotes/206215053/composite
US : U.S.: NYSE
$ 35.24
+0.21 +0.60%
Volume: 4.45M
Aug. 7, 2020 4:00p
P/E Ratio
13.38
Dividend Yield
2.04%
Market Cap
$27.41 billion
Rev. per Employee
$269,849
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/zigman2/quotes/210131093/composite
US : U.S.: OTC
$ 118.47
+0.12 +0.10%
Volume: 167,037
Aug. 7, 2020 4:00p
P/E Ratio
24.83
Dividend Yield
1.96%
Market Cap
$328.58 billion
Rev. per Employee
$303,353
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/zigman2/quotes/208115528/delayed
CH : Switzerland: SWX
CHF 107.68
+0.28 +0.26%
Volume: 3.22M
Aug. 7, 2020 5:30p
P/E Ratio
23.07
Dividend Yield
2.51%
Market Cap
CHF299.89 billion
Rev. per Employee
CHF296,880
loading...
/zigman2/quotes/200394144/composite
US : U.S.: NYSE
$ 37.84
+0.37 +0.99%
Volume: 2.05M
Aug. 7, 2020 4:02p
P/E Ratio
22.01
Dividend Yield
2.25%
Market Cap
$18.44 billion
Rev. per Employee
$717,048
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