Beyond Meat Stock Has Multiple Problems

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I’ve been skeptical about Beyond Meat (NASDAQ:BYND) stock since last summer. I don’t have anything against its product. To be honest, I’ve never tried it. Nor am I against the trend towards plant-based food. In a way, Beyond Meat already deserves a great deal of credit. Companies that are the leaders of a trend frequently do not survive the early adoption phase. Beyond Meat has certainly done that. But I’m not a big fan of many of the owners of Beyond Meat stock.

Market Size Is the Critical Catalyst for Beyond Meat Stock

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I’m  a sports fan, and sometimes I don’t dislike a team, but I dislike its fan base. Similarly, I don’t dislike Beyond Meat  stock or the company, but I dislike how investors are trading the stock. Another InvestorPlace columnist, Chris Tyler (a fan of BYND stock) actually makes my point for me when he talks about trading BYND as a momentum play.

In my opinion, the stock is volatile because its owners lack conviction in the company’s outlook.

I believe investors are trading BYND as if it represents the entire plant-based meat category because no other companies in the category have publicly traded stocks. Imagine if Canopy Growth (NYSE:CGC) was the only publicly traded cannabis stock.

In some ways that’s encouraging. Beyond Meat stock is trading based on consumer adoption of plant-based meat. But that only makes sense if consumers are buying the company’s product. And I think Beyond Meat will have a problem in that area.

The Plant-Based Protein Sector Is Growing

According to NPD Group, 18% of consumers are actively trying to eat more plant-based foods. However, that doesn’t mean they’re all going to become loyal Beyond Meat customers.

Just as the sector  is growing, so are the number of plant-based brands available to consumers. And that is not just a threat to Beyond Meat in the restaurant space; as more competitors enter the sector, the margins of the company’s grocery store products will be pressured, hurting its growth.

Although the heavy hitters haven’t yet tried to sell plant-based meat to grocery stores, they will. In the cannabis sector, the number of major players will ultimately drop. In the plant-based meat sector, the opposite trend will take place,  and that will hurt BYND stock.

Sampling Does Not Necessarily Mean Sustained Sales

It’s true that  multiple restaurant chains, including Starbucks (NASDAQ:SBUX)  and  Dunkin Donuts (NASDAQ:DNKN), are trying out Beyond Meat’s products. However, investors should also be concerned about the declining sales of the Impossible Whopper, another plant-based burger, at Burger King.

Made by Impossible Brands, Impossible Whopper undoubtedly initially benefited from an advertising surge. However, declining sales of the product or, in the best-case scenario, its peaking sales, suggest that consumer behavior is not changing on a major scale.  And  at some point, the product will have to generate sales without a tremendous number of ads.  It’s unclear if that will happen.

Beyond Meat May Not Have the Capacity to Maintain Its Current Growth

Beyond Meat won a huge victory when McDonald’s (NYSE:MCD) agreed to buy its product . And that story looked to be getting better when Impossible Brands announced that it can”t produce enough products to meet McDonald’s needs. But BYND may be in the same boat.

McDonald’s is considering expanding its test of BYND’s product in Canada by 24 stores, bringing the total  store count to 52. But according to Bernstein analyst Alexia Howard, any sales from the additional stores are already factored into the price of BYND stock.

The expansion would increase Beyond Meat’s sales nearly 300% by 2021. But at that point, says Howard, Beyond Meat’s capacity could be strained.

Beyond Meat Is Not Yet Profitable

BYND is not yet generating annual profits. And with more competitors entering the market, its window to become profitable may be closing. That fact  is leading at least one analyst to suggest that any rally by the stock will be unsustainable. Quint Tatro, chief investment officer at Joule Financial, told CNBC that:

“From a fundamental standpoint, it’s very difficult for us to get behind this name. It’s not profitable. Exceptional sales growth, but pure speculation. I’m a fan of the company. I’ve tried the burgers. I’ve tried the sausages. I mean, it’s great. But from a fundamental investment standpoint, they’ve got to be profitable. They’ve got to have positive cash flow. It’s just going to take time.”

Except its time may be in short supply.

As of this writing, Chris Markoch did not hold a position in any of the aforementioned securities.

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