Hard to Look Beyond This Opportunity
It’s time for investors to realize the opportunity that Beyond Meat, Inc. (Nasdaq: BYND) presents.
The El Segundo, Calif.-based company was a hot initial public offering in May 2019. Shares debuted at $25 and quickly shot up to $65.75, representing a 135% opening day gain. Within a year, the stock reached $240 for a market capitalization of $14.8 billion.
That valuation is far out of the normal for food businesses. Beyond Meat traded then, as it does now, like a technology company. Investors bought into the big idea that Beyond is blazing a new trail in diet, slowly moving the needle of the $11.7 trillion global food industry toward plant-based “meats.”
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From the beginning, Beyond managers were thinking big. Sanjay Shah, an Amazon.com, Inc. (Nasdaq: AMZN) logistics veteran, joined Beyond in September 2019 as chief operating officer. He was instrumental in the IPO and used the proceeds to build out supply chains.
Within a year, Shah had distribution deals in place with Walmart Inc. (NYSE: WMT), Target Corp. (NYSE: TGT) and the major grocery store chains in Canada and Europe.
Beyond executives have also been courting the quick-service restaurant industry. Firms like Carl’s Jr., Del Taco Restaurants, Inc. (Nasdaq: TACO) and Dunkin’ Donuts have been long-time partners. And in January, the company announced an agreement with PepsiCo, Inc. (Nasdaq: PEP) to jointly develop plant-based proteins for snacks and beverages.
Even without the PepsiCo deal, Beyond Meat products are available in 112,000 grocery stores, restaurants, hotels and universities.
Following last year’s third-quarter financial results in November, CEO Ethan Brown was steadfast about previous expansion plans. He also noted that sales growth accelerated 63% year-over-year despite the pandemic. Sales velocity, a food business metric that measures sales across distribution points, was 3.5 times higher than the industry average.
This is significant. Sales velocity will normally decline as businesses add distribution points. The increases mean resellers are rapidly increasing the size of orders. Beyond Meat has become a category killer in plant-based proteins, the fastest growing part of the food services ecosystem.
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This space will only grow as other innovative firms enter the marketplace and consumer acceptance of plant-based products increases.
Beyond shares trade at 23 times sales and 1,683 times forward earnings, although profit is irrelevant at this stage of the growth cycle. Based on sales growth alone, the stock should trade back to the February high of $220, a gain of about 65% from the current price near $133.
Savvy investors should use any near-term weakness as a potential buying opportunity.
Jon D. Markman