Plant based fake meat company Beyond Meat (BYND, Financial) took the vegan world by storm when it first launched its plant burgers in 2012. The burgers, which are made to look and taste similar to meat, went viral and were seen eaten or commented on by a range of news outlets and celebrities. The company has a bold mission to stop the farming of animals due to animal rights, health and even climate change reasons. According to Beyond Meat, cows are the number one agricultural source of greenhouse gases and each year a single cow produces 220 pounds of methane, which is 28 times more harmful than CO2.
Despite Beyond Meat’s hourable mission and popular brand, its stock price has been butchered and is now down by over 92% from its all time highs reached in October 2020. However, there has recently been some positive news surrounding the stock, which has caused it to pop by ~10% in the last couple of days. Thus, in this article, we will take a closer look at the company's recent developments, its financials and valuation; let’s dive in.
Plant-based business model
Beyond Meat is a food producer which specializes in plant based fake meats. Its flagship product is its “Beyond Burger," but the company has also rolled out “Beyond Sausage," mince beef and even meat balls. The unique thing about Beyond Meat (at least at the time of launch) is its products are designed to look and taste like real meat, though since then, many competitors have emerged.
Last year I covered the stock on my investing YouTube channel Motivation 2 Invest and even did a taste test relative to real meat burgers. My conclusion was that, in my personal opinion, the Beyond Meat burger tasted nicer than a standard plant based burger, but still, the real meat burger was slightly juicier. However, if sauces and topping were included, then they were closer in terms of flavour. Therefore, Beyond Meat’s recipe does require work, but the business is constantly innovating and improved its product.
Its closest competitor is Impossible Foods, which is a private company that has made a similar meat like plant based burger. Beyond Meat has an edge over this company for a couple of reasons. Firstly, its product has no added hormones or antibiotics and is non GMO. This is a major selling point for those consumers which want a healthy and natural lifestyle. Beyond Meat is also a public company, which gives it an edge in terms of capital raising and brand awareness.
New partnership news
Beyond Meat sells its products via two main channels, retail and restaurant. The company has scored a range of partnerships in the past with iconic companies such as McDonald's (MCD, Financial), Costco (COST, Financial) and Yum Brands' (YUM, Financial) Pizza Hut and KFC.
Recently, the company announced that its McDonald's “McPlant” burger, which was previously being trialed in a select number of stores across the UK, was now being rolled out across the whole of the UK and Ireland as of Jan. 4, 2023. This is a positive signal to the market as it means its burgers were strongly adopted by consumers and the trial was successful. Thus this is a major reason the stock popped.
In the U.S. market, Beyond Meat’s “McPlant” burgers were trialed in 2022 across 600 stores in San Francisco and Dallas, although it is unknown how well these have sold in the U.S so far.
In January 2023, Beyond Meat also announced its new “Beyond Steak” would be added to a range of Costco stores across Southern California, Arizona, Nevada and New Mexico. It will be interesting to see how well its products sell, as Costco is known for being a place for bargain hunters, which doesn’t really fit Beyond Meat’s price point. As I previously reported, its Beyond Burgers cost approximately double the price of real meat burgers in UK supermarkets.
A positive with its Beyond Steak it is packs 21 grams of protein and is low in saturated fat. Thus it is no surprise that Beyond Meat has recently announced a multi year agreement with the American Cancer Society to advance research into plant based meat. This is a positive sign for the progress of Beyond Meat’s products. Although details were not revealed, I imagine the company will be able to leverage grants for research.
A 2015 study by the International Agency for the Research of Cancer indicates that red and processed meat is “probably carcinogenic” to humans and has been linked to cancer. The study states that each 50 gram portion of processed meat eaten daily increases the risk of colorectal cancer by 18%, which is substantial.
The company has also rolled out its Beyond Chicken Nuggets and Beyond Popcorn Chicken across over 5,000 major retail stores such as Walmart (WMT, Financial) and Kroger (KR, Financial). These chicken products offer 50% less saturated fat and thus again offer many health benefits.
Financials
Beyond Meat stock has had a tough time with its financials in the past few quarters, and in the third quarter of 2022, it wasn’t great again. In the third quarter of 2022, the company reported $82.5 million in revenue, which missed analyst estimates by $2.5 million and declined by an eye watering 22% year over year.
In its earnings call, management reported that the macroeconomic environment has caused consumers to flock to cheaper proteins. This is a trend I predicted last year, but it has been exacerbated even more than I expected by the macroeconomic environment.
The loss per share was $1.60, which missed analyst estimates by $0.45 and declined by an atrocious 84% year over year. This was driven by the lower margin restaurant business and tepid consumer demand, which has caused discounts to sell through product.
I believe Beyond Meat products are a great “experience product." I think most people are curious to try it and compare it to real meat. Even I personally can’t wait to try the Beyond Steak and Beyond Chicken just to see the differences. However, after the initial curiosity has worn off, I believe regularly purchases of the product will be more price and flavor focused.
Beyond Meat has $390.2 million in cash and short term investments. At its current rate of quarterly cash burn ($82 million), the company has approximately 4.7 quarters, or just over one year's worth of cash before it will likely need to raise capital in 2024. This is assuming sales and/or profit margins don’t improve. A positive for the company is its aforementioned number of restaurant deals which should result in increased sales. The company has long term debt of $1.1 billion.
Valuation
Beyond Meat trades at a price-sales ratio of 1.99, which is 85% cheaper than its five-year average.
The GF Value chart indicates a fair value of $109 per share, which is higher than the current share price, but GuruFocus does warn of a possible “value trap” due to its declining sales and lack of profitability.
Final thoughts
Beyond Meat has cited a huge $1.4 trillion total addressable market, as it believes it has a major opportunity to transform the entire protein consumption industry. Its new partnerships are a strong positive, and I expect its McDonald's UK rollout to produce a substantial number of sales. Its new products are also a strong positive, and its Beyond Steak was named on the Times list of best inventions in 2022.
However, the current macroeconomic environment is expected to further impact the struggling business. Therefore, I will label the stock as speculative for now, but I still believe it has long-term potential.
