Although I focus on megatrends to extract the best possible investing ideas, they’re also useful as a warning system against stocks to avoid. In particular, I avoid chasing fads like Beyond Meat (NASDAQ:BYND). Admittedly, Beyond and the plant-based protein industry are hot topics. However, I ultimately see Beyond Meat stock fading away not in dissimilar fashion to National Beverage (NASDAQ:FIZZ).
A few years ago, FIZZ shares seemingly shot up from obscurity to dominating headlines on Wall Street. Thanks to its LaCroix brand of sparkling water, National Beverage came to prominence. Specifically, millennials bought the products by the boatload as a trendy, carbonated drink that was supposedly healthy. However, many people caught on that LaCroix wasn’t nearly as healthy as the hype suggested.
Eventually, I believe this narrative, not the novel-coronavirus-fueled thesis, will determine the overriding trajectory of Beyond Meat stock. As you know, the stock blasted higher off its March doldrums as meat shortages began plaguing the food supply chain. Suddenly, consumers saw dwindling inventory at their local grocers. Naturally, plant-based meat companies took advantage of the organic marketing opportunity, presenting a new, progressive solution to our protein problem.
But by that logic, Beyond Meat stock should be trading much higher than it is. After all, you couldn’t ask for a better ecosystem than your competition being taken out of commission. However, one of the reasons why Beyond’s stock didn’t fly off the shelves was that the meat shortage crisis wasn’t all that it was cracked up to be.
Recently, a USA Today analysis of U.S. Department of Agriculture data revealed that Americans were never at risk of a severe shortage. That raised a lot of eyebrows.
Beyond Meat Stock Is At a Dangerous Crossroads
If the analysis is accurate, investors should tread carefully with Beyond’s stock. Primarily, the underlying company has lost a critical catalyst: the traditional competition may be healthier than initially advertised. Also, news about sharply rising coronavirus cases and hospitalizations probably won’t have the impact that the initial wave did.
But even if we set aside the Covid-19 disruption (or lack thereof), I still see the case for Beyond Meat stock weakening. Despite the many criticisms against this demographic, the millennial consumer is quite shrewd and discerning, particularly when it comes to products that they put into their bodies.
According to one food-related survey, millennials reported “making 17 tweaks or changes to their diet per year.” The most significant change was a shift toward healthier foods, then avoiding sugar and carbs and finally, electing more plant-based foods. Other changes included reductions in alcohol and meat consumption.
Mainly, the motif here is health consciousness as opposed to platform consciousness. As I mentioned above, one of the factors that popped the LaCroix bubble was the health façade. The same dynamic threatens Beyond Meat stock.
I’ve consistently argued that plant-based meats are too highly processed, featuring multiple ingredients and chemicals. Thus, with Beyond, consumers are replacing the platform but not introducing a healthy alternative.
Plus, many nutritionists argue that meat itself isn’t necessarily unhealthy. But processing can turn anything into a product to avoid. That’s why health professionals frequently state that you should not eat cold cuts if you can help it. Again, it’s not about whether the cold cuts are real or plant-based; rather, if they’re processed and loaded with chemicals, neither format is ideal.
Eventually, consumers will catch on to this reality. Certainly, millennials who are focused on healthy products will.
The Competition Is Salivating
Another factor that contributed to the implosion of National Beverage’s LaCroix bubble was competition. Laurent Grandet, a beverage analyst for Guggenheim, stated that a “lack of meaningful or disruptive innovation” basically invited companies to steal market share. And they did exactly that.
That’s also the problem staring Beyond Meat stock in the face. While it might seem as if plant-based meat is a new phenomenon, the only thing novel about it is the marketing hype. In reality, the concept of meat alternatives has been around for centuries.
Therefore, it’s impossible for Beyond Meat not to expect competition to move in and disrupt this space. Furthermore, some of Beyond’s rivals include well-heeled organizations that could theoretically scale up their production to meet demand.
But this is also now a big question mark. With an over-hyped meat shortage, meat alternatives will have to justify themselves by their overall product quality and price. This is probably an unreasonable challenge, which is why Beyond Meat stock is presently unconvincing.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.