Beyond Meat…… Beyond Believe

Resource Sustainability are one of the megatrends which taking shape in 21st century. As more consumers demands more companies to play a bigger role in social responsibility, resource sustainability become the focus point in their CSR reporting.

Recently, I took a glimpse at a video documentary titled “Sustainable” (2016) on Netflix. It featured a strong argument why meat eating is not sustainable to the environment and adding strain to the world's resource. The amount of waters and feeds needed to raise a cattle is huge which only feed few individuals compare to agro farming. Chart below shows that 1lbs of meat from cattle required 15x more water, 12x grains/feeds and produce 13x more CO2 footprints compare to 1lbs of soy beans. This is not sustainable for meats demands keep increasing,  draining our precious water resource and adding more CO2 pollutions to Mother Earth. A sure path to self destructions for mankind's, if you believe their theory.

One company that caught my attentions which I think it has huge potential to grow multiple times over, that is Beyond Meat. This is a green field producer of plant-based alternative meats. Beyond meat can be at the epic center catching the wave of sustainable movement demands by millennium consumers.

The company

Beyond meat is Los Angeles-based producer of plant-based meat. Launched its IPO on May 2019 with a price of $25 per share with market valuation at $1.46 billion. After listing in 2019, the stock saw huge demands from publics pushing the price of the stock to all time high of $234.90 in July. That was 10x of the IPO price in very short time. It crashed back to earth and trading between $60-$80 for the most part of the year.

The recent run up due to recent positive announcement by its rival and partners.  The recent spike began on Jan. 7, its arch rival Impossible Burger said it would not be able to produce enough burgers to partner with McDonald. Shares of Beyond Meat jumped up 12.5% that day after the news and have kept climbing. McDonald's also said that it was expanding its test run of Beyond Meat to more locations in Canada. This was a very good news for BYND as McDonald is the biggest fast-food chains in the world, total 38,000 stores.

The numbers

Third Quarter 2019 Financial Highlights Compared to Prior Year Period

•Net revenues were $92.0 million, an increase of 250.0%;

•Gross profit was $32.8 million, or 35.6% of net revenues, compared to gross profit of $5.0 million, or 19.2% of net revenues, in the year-ago period;

•Net income was $4.1 million, or $0.06 per diluted common share, compared to net loss of $9.3 million, or $1.45 per common share in the year-ago period; and

•Adjusted EBITDA, which is a non-GAAP financial measure, was $11.0 million compared to an Adjusted EBITDA loss of $5.7 million in the year-ago period.

Information above taken from the latest quarter posted on the web. This company had posted its first quarterly profit compare to previous year, which means its business is getting more efficient. I believe more good news to follow as its continue to grow its footprints.

The Verdicts - my takes 3 on 3

Here, I’m listing down 3 advantages that I like about this company:

1.       Right product for millennia – Plant based alternative meats can ride the waves of demands from the sustainability megatrends theme for multiple years at the explosive growth potential.  

2.       Strong branding – strong marketing in branding, similarly liken Coca-Cola to soft drinks or Tesla to electric car, Beyond meats is strongly associate with alternative meats. Everyone knows the brands when mentioning “plants based meats”.

3.       Partnership with the Best – The partnership between Coca-Cola with McDonald make them invincible in corporate world, propelling Coke to No.1 positions that no one can overtake. This history can repeat its self with the strong partnership between BYND and MCD. That is the moat that will make BYND invincible.

3 red flags which can be potential landmines for this company:

1.      Unfavorable blind tasting survey- You can find many video at YouTube regarding the tasting survey between Impossible and beyond meat. Most of the people (>70%) preferred Impossible meat as it taste better and texture more closely resemblance the real meat.

2.      Unfavorable financial matrix- at the current share price, the PE would be 2,000x. Even if you consider the projected growth rate of 200% for the revenue growth and the industry projected growth rate of 30% per year for plant-based meat market size of $3.5 billion, it is way too expensive even for “Amazon-hype” standard.

3.      Product pricing- Beyond meat’s products is beyond expensive compare to all other competitors in the market. Eventually, they may have to lower down the pricing and that will hurt their bottom lines. Their razor thin profits margin may evaporate quickly unless they can increase their production efficiency further.

My takes

It has an incredible run up in share price in 2019. I believe it has huge potential to be multi-bagger with the right trends, sharp business executions and perfect partnership (McDonald’s). Taking all the risks in consideration, I think this company is investable in long term when the right price present it self. If you believe alternative meat is the answer to sustainability, then BYND might be the right stock to own.     

- WILLIAM CHENG

Disclaimer: All investment come with great risk and should proceed with cautious. This is not an advice to buy or sell any stock. It is important to do your own research and analysis before making any investments.

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