Author | Julian Lin
Beyond Meat is overrated. More importantly, the taste of its products is comparable to that of its competitor Impossible Foods. There are real risks here.
In the past few years, Beyond Meat () is one of the first bubble stocks to produce so-called "meme stocks". I remember BYND's IPO priced at $25 per share in 2019
share price
0 in 2019 after reaching a peak of $240 per share in 2019, BYND fell below $60 per share in 2020, and then surged again to around $200 later that year. Since then, the stock has plummeted to around $50 per share.
YCharts
YCharts
At these prices, the stock trades at the same price as it was when it was first listed. This is common among the hypergrowth stocks listed in recent years, but unlike many other stocks I have encountered, BYND doesn’t seem worth buying here.
BYND Stock Key Indicators
As demand for groceries increases, BYND's business surged in 2020, but this tailwind turned into a headwind in 2021. BYND is able to offset this headwind through its restaurant partnerships and the strength of its international market.
surpasses presentation for the fourth quarter of 2021
We can see the growth segmentation by distribution channel below.
surpassed the fourth quarter of 2021 presentation
For stocks that are generally considered high growth, BYND achieved only 14% growth in 2021. The slowdown is surprising given that the 37% growth generated in 2020 has already dropped significantly from the 239% growth generated in 2019. The gross profit margin of
BYND also fell by 490 basis points to 25.2%, and operating expenses increased by more than 2,000 basis points.
surpassed the fourth quarter of 2021 presentation
The final result is that BYND changed from adjusted EBITDA profitability to an adjusted EBITDA loss of $112.8 million. I noticed that BYND's debt consists primarily of 0% convertible notes, and its $3.6 million interest expense for 2021 is mainly composed of non-cash amortization of the debt issuance cost. Therefore, from a financial solvency perspective, the adjusted EBITDA can be considered a representative of free cash flow. Analysts did ask about the progress of EBITDA, but management simply said they “think there will be more activity in the second, third and fourth quarters” without directly addressing future margin issues.
Why is BYND at risk this year?
BYND There are several potential reasons for the stock's decline this year. The first is probably due to its loss of market share.
surpasses presentation for the fourth quarter of 2021
However, the more likely reason is that the meme stock trading environment that dominated the past two years since the pandemic has finally dissipated. Without the support of retail investors, BYND stocks have no fundamental support to stop the decline.
Beyond Meat is underrated now?
Even after the decline, Wall Street analysts only rated the stock to 3 out of 5 points, i.e. "Hold rating."
Look for Alpha
The average target price of USD 50.12 per share has no room for upside compared to the current level.
Looking for alpha
I later explained my own stock valuation method and explained why I don't think the stock is undervalued.
BYND can the stock rebound?
Although the stock is not cheap from a fundamental point of view, this does not mean that the stock cannot rebound. It has been hyped in the past and it has reasons to do it again in the future. After all, BYND's business model is both trendy and catchy. BYND is using technology to make “fake meat”.
surpasses the fourth quarter of 2021 presentation
has, and the stock is likely to benefit from future short squeezes.
BYND Is the stock bought, sold or held?
Wall Street generally estimates that revenue will reach $590 million in 2022, just between $560 and $620 million expected by management.
Look for Alpha
Although the trading price is close to the IPO level, the stock's forward sales are still about 5.5 times. This multiple is not cheap at all for a stock with a forward growth rate of about 27%, especially given that the trading levels of tech stocks with higher margins are comparable. I should also note that BYND's gross profit margin hovers around 25%, much lower than the gross profit margin of tech stocks above 65%. Would you rather hold BYND with 5.5x sales and 27% forward growth or hold stocks like Elastic () with 8x forward sales, 74% gross margin, positive cash flow and 26% forward growth? In terms of gross profit, BYND's trading volume even surpasses many tech stocks.
I am not against buying unprofitable growth stocks, I will use the same approach here. Due to the competitive environment, I doubt BYND can drive meaningful gross margin expansion. Due to the low gross margin of 25%, it is difficult to predict a strong net profit margin in the future. Even if we assume a 10% long-term net profit margin, the stock will have a P/E ratio of around 55 times, which will represent a fairly high 2x P/E ratio growth rate (“PEG ratio”).
The question here is that I doubt the company can achieve a 10% profit margin in a reasonable time, or it simply cannot. In order to generate operating leverage, the company needs to maintain strong growth rates for years. However, BYND faces a problem: It doesn't seem to pass the taste test. In my experience trying BYND products with Impossible products, there is no comparison at all: BYND products don’t taste like meat and are not delicious, while Impossible products may be mistaken for meat and are very delicious. This is certainly anecdote, but there seems to be a clear consensus that the Impossible product tastes much better than the Beyond product—at least I can’t find any examples of flavor testers prefer Beyond products over Impossible products. Here is an example.
There is a clear and important difference between BYND and Impossible. While Impossible’s use of genetically modified ingredients effectively lures the taste buds to think it’s meat, BYND seems to be a more advanced version of the traditional vegetarian burger. For this reason, I don't believe that BYND will be able to improve its products to effectively compete with meat, or even impossible. If anything, Impossible is the company that seems most likely to create an alternative meat that can capture market share from traditional meat. It seems that BYND trades at these valuations mainly because Impossible stock has not been published yet, but. While the alternative meat market should not be a "winner-takes-all" market, due to the huge gap between its products and Impossible's products, I don't expect BYND to have a meaningful market share in the long run.
Even if I assume long-term profitability, BYND is not cheap either, but considering that its product may not be the best in its class (even close, but I will lay off employees), the road to profit seems difficult. More importantly, the company is still burning money. With $400 million in net debt and $733 million in cash, BYND may soon face bankruptcy risk. I expect the company to raise cash in the near future to support its balance sheet. Although my official view is bearish based on fundamental analysis, the movement of stocks such as AMC or GameStop makes short selling a dangerous attempt. Perhaps a better rating is to avoid stocks and instead support better alternatives elsewhere.
Article source: US Stock Research Society, aiming to help Chinese investors understand the world, focus on reporting on US technology stocks and Chinese stocks listed in the US. Friends who are interested in US stocks should pay attention to us
