Beyond Meat’s Rich Multiples, Looming Competitors Make It a Tough Buy

Stocks to sell

Few of 2019’s initial public offerings garnered the buzz and subsequent volatility generated by faux meat producer Beyond Meat (NASDAQ:BYND). Considering that Beyond Meat made its debut as a public company in early 2019, shares have been all over the place.

Like Its Burger, BYND Stock is a Matter of Taste and That’s a Problem

Source: Sundry Photography /

The IPO priced at $25, but Beyond Meat stock surged a staggering 163% in its first day of trading. That was by far the best first-day showing of any U.S.-listed stock during the 2010s. And since the start of the 21st century, just 10 IPOs had larger first day gains. All of those companies debuted in 2000, before the bursting of the tech bubble.

Underscoring the point that Beyond Meat stock has earned a reputation for volatility in a short amount of time, its high for 2019 was almost $240, but shares settled at $75.60 to close the year. Indeed, it’s fair to wonder if BYND is a $250 or $25 stock.

Like so many of its newly public brethren from 2019, Beyond Meat isn’t yet profitable. However, it is loaded with potential and is richly valued. Entering 2020, BYND stock sported an astronomical price-to-earnings ratio of 285.7 and a similarly staggering price-to-sales ratio of 20.1.

Split Views

To say analysts and investors are divided on Beyond Meat stock is putting things mildly. It’s not up for debate that restaurant sales are thriving and diners are looking for healthier options. Some analysts believe BYND restaurant sales could swell to $8 billion by 2025, good for a 42% compound annual growth rate.

Others, such as Creighton University finance professor Robert Johnson, see Beyond Meat as an expensive fad stock.

“Beyond Meat (BYND) is one of the latest cult stocks to capture the imagination of investors,” Johnson told InvestorPlace. “The recent IPO sells at 20 times sales. I can hear value investors like Warren Buffett saying that while plant-based protein may indeed be a huge trend in food sales in the future, the fundamentals of the company are precarious because there is no moat with the product.”

Johnson’s assessment that BYND lacks moat is accurate. This year could bring competitive threats in the form of Conagra Brands (NYSE:CAG), Hormel (NYSE:HRL), Kellogg (NYSE:K) and Tyson Foods (NYSE:TSN).

Amid those looming, well-heeled competitive threats, Beyond Meat probably needs to grow revenue at an annual rate of 40% over the next three or four years. If it does that, it might just come close to justifying current frothy multiples.

Bottom Line on Beyond Meat Stock: Division Reigns

Beyond Meat’s poultry push could be a catalyst for the stock in 2020. The company recently completed a trial with Yum! Brands’ (NYSE:YUM) KFC unit. The poultry transition is a natural, sensible one for BYND. After all, diners love burgers and fried chicken, and many would certainly like to find healthier alternatives to those fatty indulgences.

Additionally, increasing environmental consciousness among diners could be a boon for Beyond Meat stock, though that’s a long-ranging thesis. One Morningstar analyst says 20% of consumers are willing to adjust daily routines to help the environment.

While there’s no denying that alternative meat can become a giant market, time frames for that happening vary wildly as do estimates for BYND’s future position in that market. As such, just a quarter of the analysts covering Beyond Meat stock have the equivalent of a “buy” rating on it.

Johnson may be right in saying, “The bottom line is that you may want to consume a Beyond Meat burger but refrain from buying the stock.”

As of this writing, Todd Shriber did not own any of the aforementioned securities.

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