Beyond Meat: Industry Leader, But Speculative Investment

Beyond Meat (BYND) is one of the most exciting success stories in the food industry, known for its revolutionary plant-based meats. The company develops meat directly from plants, allowing consumers to experience the taste, texture, and other sensory attributes of conventional animal-based meat products without missing the nutritional benefits. Moreover, the plant-based meat products carry environmental advantages.

What’s exciting about Beyond Meat is that the company is a clear industry leader in the alternative meat industry, with its revenues exceeding $400 million last year. With an increasing number of consumers converting to plant-based meat, the company is set to continue gaining market share in the $1.4 trillion global meat industry.

In that regard, Beyond Meat seems to be the perfect vehicle for investors to participate in this trend. As a vegetarian myself and consumer of Beyond’s flagship product, the Beyond Burger, I am a believer in the company’s future success. That said, it’s hard to predict the company’s growth, and future profitability levels remain rather obscure. For these reasons, I am neutral on the stock. (See Beyond Meat stock charts on TipRanks)

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What is There to Like

Apart from the strong organic trend involving a growing number of consumers turning away from conventional meat products to alternative, plant-based ones, there are some powerful catalysts to like about Beyond Meat.

Specifically, the company seems to be leading the way when it comes to partnering with big players and food chains, which should not only accelerate sales going forward but strengthen the company’s brand. For instance, the company currently enjoys a three-year partnership with McDonald’s (MCD), making Beyond Meat the preferred supplier for the patty in the McPlant, McDonald’s plant-based burger.

The company has also been expanding its partnership with Starbucks, with whom it is helping develop the Beyond Meat Breakfast Sandwich across the UK and in the Middle East.

In my view, these partnerships are likely to develop into long-term supply agreements, as consumers become more familiar with Beyond’s products. Additionally, with industry behemoths such as McDonald’s and Starbucks (SBUX) inserting Beyond’s products into their menus, the company’s credibility and prominence are indirectly validated to be strongest in this space.

What is There Not to Like

While Beyond’s industry-leading position in a growing industry is certainly enticing, there are some issues that worry me. The first one is competition. While Beyond has the first-mover advantage and has been growing its brand successfully, bigger players in the industry with higher financial flexibility (i.e., the luxury to lose more money on the way) could catch up with Beyond moving forward. For instance, Nestlé (NSRGF) is making good progress with its own plant-based burger.

Speaking of losing money, Beyond Meat remains unprofitable, and it’s quite difficult to predict when solid profits will, if ever, kick in. The company’s gross margins are already quite compressed at around 30%, leaving little room for a juicy bottom line. In that regard, conglomerates such as Nestlé have a significant competitive advantage, as they can easily absorb higher development costs and scale their businesses to higher margins more easily.

Wall Street’s Take

Turning to Wall Street, Beyond Meat has a Hold consensus rating, based on zero Buys, five Holds, and one Sell assigned in the past three months. At $108.50, the average Beyond Meat price target implies 7.87% upside potential.

Disclosure: At the time of publication, Nikolaos Sismanis did not have a position in any of the securities mentioned in this article.

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