Would you pay 30 times revenue for a money-losing “growth” company that had stopped growing? But that’s where Beyond Meat (NASDAQ:BYND) finds itself after reporting a loss of $19.3 million, 31 cents per share, for the quarter ending in September. Sales for Beyond Meat stock came to $94.4 million, up just 2.7% from a year earlier.
Shares in the plant-based “meat” company had peaked in early October at $194. Now trading at $136, the company has a market cap of $8.5 billion.
Even there, the shares are no bargain. If you’re sitting on a profit, and have a queasy stomach, it may be time to get off this ride.
The Bears Roar
The earnings were met with all the enthusiasm of month-old bacon in the back of the refrigerator.
The Financial Times wrote that the quarter was “beyond awful.” Tepid revenue growth, rising inventory, falling margins. As was said in the musical Curtains, “I put on The Iceman Cometh. And nobody cameth.”
What’s worse is that Beyond Meat has no moat. There are lots of other faux meat companies out there, starting with Nestle (OTCMKTS:NSRGY) and Impossible Foods, which is expected to go public next year. Beyond Meat just happened to hit the public market first. It was a pure play, the only way for investors to get into an exciting trend.
Yet the stock is still priced like a cloud play. The stock chart, meanwhile, looks like the EKG of a heart attack victim. There’s the peak of $235 last year, then a pandemic low of $54, then the latest peak of $194 and today’s price.
A Barclays analyst thinks Beyond could still drop to $100. What looked like a long-term trend is now seen by analysts a “busted growth story,” the stock “very risky.”
Green Shoots
There are reasons for hope.
Beyond Meat has new distribution agreements with CVS Health (NYSE:CVS) and YUM! Brands’ (NYSE:YUM) Pizza Hut chain.
McDonalds (NYSE:MCD) first said it developed its new McPlant burger in-house. It later amended that to say Beyond Meat was still involved.
Beyond Meat is also continuing to innovate. It has two new formulations. One makes for a juicier burger. The other makes for one lower in saturated fat.
There’s also a new Beyond Pork launching in China. It’s designed to mimic the flavors found in dumplings and spring rolls. China is the world’s largest pork market, and a disease called African swine fever means the meat is currently in short supply. The company is building a plant in Shanghai to scale production.
There remain many meatless meat niches beyond ground meat, pork, and sausage. Dairy treats are coming soon from start-ups. When Beyond launched a faux chicken at a Kentucky Fried Chicken stand near Atlanta, it sold out in hours.
The Bottom Line for Beyond Meat Stock
The good news is that plant-based meat is a thing. It’s growing in all directions, and Beyond Meat is the best marketer in the space.
The bad news is that the current stock price has no relation to reality. There’s competition coming from every direction, from supermarkets like Kroger (NYSE:KR) to meat companies like Hormel Foods (NYSE:HRL), makers of Spam. (I happen to like Spam.)
It’s reasonable to believe that McDonald’s is making McPlant itself because Beyond couldn’t scale to meet its needs. There may be licensing and royalty revenue coming from that.
Scaling is the key. Fake meat still costs more than the real thing. Mass production can change that, but until it does this will remain a niche product. Beyond Meat stock is hamburger, not steak. If you have profits sell and look for a better entry point.
On the date of publication, Dana Blankenhorn did not have (either directly or indirectly) any positions in any of the securities mentioned in this article.
Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of the environmental thriller Bridget O’Flynn and the Bear, available at the Amazon Kindle store. Write him at [email protected] or follow him on Twitter at @danablankenhorn.