In this scenario, Beyond Meat grows NOPAT by 36% compounded annually over the next decade and the stock is worth just $44/share a 67% downside to the current price. While Beyond Meats SG&A (which includes marketing and advertising expenses) represents a large percentage of the firms TTM revenue, the firms total dollars spent on SG&A pales in comparison to larger competitors. Clearly, vegan meat alternatives were no longer a fad. The plant-based food market will grow bigger and bigger every year. If Beyond Meat created the healthiest plant based products that dont taste very good then it wouldnt be in business very long. The company's vision is for consumers to enjoy a meat-like taste and texture in their favourite dishes while avoiding the many chemicals used in processed meat and reducing the number of animals killed every year. This wasn't a cheap decision -- Beyond Meat incurred a charge of nearly $6 million to repack and reroute this inventory in response to consumer demand. Per Figure 4, Beyond Meats operating expenses as a percent of revenue have actually increased over the past twelve months from 97% in 2Q19 to 107% in 2Q20. However, we can define the general key aspects: Targeting meat-eaters as well, not only vegans/vegetarians, Identifying the collective reputation of plant-based products, and changing it, Relying on its reputation to appear on restaurant menus and get cheap advertising. Since going public in early May, Beyond Meat's stock has soared more than 450 percent and its market value is over $8 billion. + Follow. No more comparison with animal meat products: Beyond Meat has nothing more to prove, its products are famous, recognized as good for the palate and for our health. One of the ways it did this was by creating burgers that look like meat burgers down to the meat actually bleeding. Purchase Decision- When consumers are informed of the evaluation of options, information is readily available, and they have recognized a problem, it is so easy for consumers to make a newly informed decision. Some of the largest consumer food brands have followed suit. From the beginning Beyond Meat has viewed itself as a company that could take a typical meat eater and get them to consider a tasty alternative. Cost basis and return based on previous market day close. Beyond Meat Inc. BYND, -7.36% is revamping its retail sales strategy to center on five major grocers and hiring a new marketing executive as part of an effort to reinvigorate the plant-based food . Despite less transparency, I know that Beyond Meats executive compensation plan consists of a cash bonus, option grants, and restricted share units (RSUs). Insider Trading and Short Interest Indicate Market Skepticism. This year also saw Beyond Meat break into the international market partnering with the likes of Tesco in the UK to A&W in Canada). Published May 20, 2021. This would, in turn, take BYNDs market cap to about $14 billion by 2023, from $9.6 billion currently. Beyond Meat stock has staged a dramatic recovery in January, rising by more than 50% since the end of last year. They knew that vegans and vegetarians would use and love the product regardless if they targetted them because the products were so superior to what they were used to. A year ago, the consumer discretionary upstart's top line reflected the depth of its marketing and supply chain investment in the restaurant business: These sales were nearly identical to their retail counterpart: Source: Beyond Meat. Various trademarks held by their owners. Beyond Meat, which went public in the spring of 2019 and whose shares have fallen 16 percent this year, said it had completed a comprehensive greenhouse gas analysis that would be released in. The coronavirus pandemic put a halt to the companys fast-growing revenues as shutting down of restaurants due to the lockdown significantly affected the companys restaurant and foodservice business, which was the fastest growing segment for BYND until 2019. Then, followed by J.J. Redick, Maya Moore, April Ross, Eric Bledsoe, Maggie Vessey, and Tia Blanco. strategy uncovers and shares the "bold vision, . About 70% of the global population is cutting down its meat consumption. illustration, packages of Beyond Meat "The Beyond Burger" sit in a refrigerator, June 13, 2019 in the Brooklyn borough of New York City. While there are numerous brands that have popped up over the years whove thrown their metaphorical hats into the meat alternatives ring such as Impossible Foods and Quorn Beyond Meat is still one of the most successful and well-known. And this failure didnt break them for a few reasons most importantly, because they already had new products in the works. By 2015, even Walmart was selling Beyond Meats plant-based products! Heres a high-quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. And the organization continues to spill a slight amount of red ink, generating a loss of $10.2 million over the last three months versus a loss of $9.4 million in the second quarter of 2019. As we touched on earlier, not everything was easy for Beyond Meat they made their fair share of mistakes along the way. It has put them in a competitive sustainable advantage position because others will have to spend a lot of money on research and development to get their plant-based burger to taste like theirs. Having the largest natural and organic food retailer in the United States take a chance on this relatively unknown brand gave other grocery retailers an incentive to try the same product placement in their stores. But thats what BYNDs investors are betting will not happen! Finally, innovation is another key element of success for Beyond Meat: if they are the leaders, lets not forget that it is also because their products are great, packed with plant-based proteins. What can you learn from this? After all, nothing could replace a real burger, could it? .css-16c7pto-SnippetSignInLink{-webkit-text-decoration:underline;text-decoration:underline;cursor:pointer;}Sign In, Copyright 2023 Dow Jones & Company, Inc. All Rights Reserved, adidas Promo Code - $30 Off 1000s of Best-Sellers + Free Shipping, 60% off running shoes and apparel at Nike without a promo code, Michael Kors promo code First Order: sign up for KORSVIP + Get 10% off. Their main rival is the company Impossible Foods. While Beyond Meats stock performance is attractive to many momentum traders, investors with fiduciary responsibilities should consider the deteriorating fundamentals, weak prospects to compete at the scale of its competition, and the unrealistic increase in profits implied by the current valuation. Figure 3 shows Beyond Meat spends 37% of its revenue on operating expenses (SG&A, R&D, and restructuring costs), which is well above peers. These launches create a lot of buzz and put Beyond the Meat on the map. People tend to associate meat with strength, with muscles. Information Search- Consumers using this new information to do their own research on the history of slaughter houses and the conditions in which animals are being tortured and killed to create meat. This is not by accident but instead by design. Beyond Meat founder, Ethan Brown, understood the place of meat in the collective perception very early on. How? Figure 1: Consensus Revenue Growth Estimates: 2020-2025, 2020-2025 revenue growth rates based on consensus estimates, Competition is Plentiful and Has Competitive Advantages. For example, without any existing shelf space, and only recently announcing an e-commerce platform, Beyond Meat must spend more on not only convincing consumers to try their products, but also on retailers to display their products. Data by YCharts Kellogg ( K ) and Conagra ( CAG ) are already big established brands, that . Problem Recognition- Consumers did not know about the conditions of the animals that are actively being slaughtered to create meat. Beyond Meat has been working with them since February 2019. We believe Beyond Meat Revenues have the potential to rise close to 2.7x from the level of $407 million in 2020 to $1.1 billion by 2023, representing a growth rate of roughly 40% per year (for context, the compounded annual growth rate was a very healthy at 164% between 2016 and 2019). Furthermore, Don Lee alleged significant concerns about food safety protocols concerning the raw materials that Beyond Meat sent. In2016 Whole Foods decided to give the company a chance by placing Beyond Meat in its meat section. Beyond Meatis one of them for the plant-based segment. But beneath these numbers, the dynamics of Beyond Meat's business model have been radically altered by its response to the COVID-19 pandemic. These sales represent 5% of shares outstanding. Considering these competitors are already supplying plant-based protein products, Beyond Meat faces an increasingly uphill battle to reach the size it needs to match the cost efficiencies of larger competitors like these two established firms. If Beyond Meat can improve its NOPAT margin to 5% (equal to Tysons TTM margin) and grow revenue at 61% in 2020, 55% in 2021, and 47% in 2022 (consensus estimates) and by 20% compounded annually thereafter, the stock has significant downside risk. This indicates an extremely successful uptake by consumers. However, Kelloggs appears it is ready to launch Incogmeato and recently partnered with Postmates to deliver free Incogmeato samples to residents of Denver and Dallas. Investors are beginning to worry whether or not Beyond Meat will be able to sustain the $4 billion valuation in stock it currently has. If you want to stay up-to-date on the latest news in the plant-based market, to learn about the most recent innovations as they come out, do not hesitate tofollow us. https://www.wsj.com/articles/beyond-meat-hires-marketing-executive-revamps-retail-strategy-11675379688. There are currently 7 million shares sold short, which equates to 9% of shares outstanding and just over one day to cover. Engineered plant-based burger patties from food, company Beyond Meat are visible on shelves among other meat alternatives at a grocery store in San Ramon, California, August 28, 2019. All rights reserved. Also, seeing that a lot of slaughter houses will absolutely not let anyone come see the inside conditions that animals are facing. Plants come directly from the sun and reap the energy created from the sun. First, consumers expectations for new products and innovation will rise over time. Part of this shift happened without much intervention by management, as consumption in restaurants and other institutional foodservice outlets has plummeted since the spring, while at-home consumption has soared. The following fund receives an unattractive rating and allocates significantly to BYND. Instead, it avoids labelling its products as vegan even though they are. Nope, its just Beyond Meat. But at this stage of Beyond Meat's growth, converting new customers remains the utmost priority. See the math behind this reverse DCF scenario. By Tricia McKinnon. While this may seem like a minor detail using beetroot juice to mimic blood it helped the Beyond Burger get one step close to winning over non-vegans. Beyond Meat was originally founded in 2009 by Ethan Brown, who worked with two University of Missouri professors, Fu-hung Hsieh and Harold Huff, to develop meatless, plant-based protein The professors had been working on perfecting their formula for years, and the first Beyond Meat product launched in 2012 was their "Chicken-Free Strips". It looks like meat, tastes like meat, and even feels like meatbut its made entirely of plants. Remember the man-ish look of the burger boxes, the focus on the amounts of protein? Still, disputes aside, Beyond Meat has been doing very well these past few years. In the second scenario, I use 61% growth (2020 consensus estimate) for all years to illustrate a best-case scenario where I assume Beyond Meat could grow revenue faster within the larger distribution network, resources, and customer base of Kraft Heinz. To illustrate, the company repackaged a portion of its slow-moving food service inventory for retail consumption. By paying attention to all the details of a real burger the taste, texture, smell, feel, and consistency Beyond Meat has been able to break into a target audience that had yet to be cracked: mainstream consumers interested in healthier forms of meat. See Figure 8 for details. Without significant increases over the margins and revenue growth assumed in this scenario, an acquisition of Beyond Meat at its current price destroys significant shareholder value. Of course, this is wrong, and our body adapts to whatever we give it. After much anticipation, Beyond Meat announced a three-year partnership with McDonalds in February 2021, under which BYND will be McDonalds preferred supplier for the patty in the McPlant, a new plant-based burger being tested in select McDonalds markets globally. Beyond Meat was the first company to sell plant-based burgers in grocery stores meat sections. The redistribution of cash flow to its investors is a challenge. Therefore, restaurant owners tend to put the Beyond Meat logo on the menu when featuring their products. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, and premium investing services. Beyond Meat, the company that is making eating plant-based protein mainstream continues to grow at a fast pace. Figure 9: BYND Has Large Downside Risk: DCF Valuation Scenario. Weve previously shown how linking executive compensation to faulty metrics such asadjusted EBITDAcan lead to the destruction of shareholder value. Meditation apps have seen a boom in popularity over the past few years in the US but does their growth extend to Europe? The difference with other plant-based patties is that their name is a synonym of quality for their clients. Competition- Beyond Meat has created competition by completing innovating meat and how meat is viewed. Attracted by Beyond Meats impressive growth rates and soaring market value, multiple competitors are entering the alternative meat industry. 2 1 Comment. When I use myreverse discounted cash flow (DCF) modelto analyze the expectations implied by the stock price, BYND appears significantly overvalued. Beyond Meat would rather investors focus onflawed non-GAAP metricssuch as adjusted EBITDA, which allow management to remove real costs of the business and to paint a rosier view of profits. However, the poultry producer exited earlier this year . After all, the positive choices we make every day - no matter how small - can have a great impact on our world. Should Kellogg continue to push the marketing of Incogmeato and swiftly gain customers, investors may kiss the ultra-high expectations baked into BYND goodbye. Beyond Meat just IPOd last year, it is very interesting to me to see that it is a 9.30B company as of today. Are they only for vegans? Over the TTM period, FCF is -$164 million. In the first scenario, the estimated revenue growth rate is 61% in year one, 55% in year two, and 47% in year three, or equal to consensus. As of 2020, the Beyond Meat company sells: Cookout Classic (10 plant-based burgers). Prior to that Mr. Oghoghomeh served as Head of Recruitment Marketing - West Zone for Amazon, an eCommerce company from 2019 to 2021. As the industry becomes more commoditized, economies of scale will be even more important for firms seeking profitability, which doesnt bode well for smaller firms such as Beyond Meat. And now the ravenous race for market share begins, with Beyond Meat and Impossible Foods (which has raised nearly $500 million in debt and equity) in prime position to . However, one of the biggest deal breakers for potential. If yes (which is the most common case), you can sell them to way more people and have an even greater impact. Founder and Tech Inventor at Princess Technologies. As of December 31, 2020, Beyond Meat had products available at approximately 122,000 retail and foodservice outlets in over 80 countries worldwide. Especially when competitors will try to introduce products that may be better than the original. What are your predictions for the future of this company? revenue grows 24% a year from 2023-2027 (continuation of 2023 consensus), then. Figure 3: Operating Expense as % of Revenue: Beyond Meat vs. But for a young organization that wants to leapfrog rivals in gaining plant-based mindshare, the shift isn't illogical, and it may result in a durable competitive advantage. Organic growth along with benefits from the recent partnerships are expected to support continued healthy growth in retail as well as the restaurant segments of Beyond Meat, potentially taking the companys revenues to almost $1.1 billion by 2023. Rising beef prices, coupled with the overwhelming at-home food consumption trend, present an unforeseen opportunity for the company to entice new customers by doubling down on grocery sales. What can you learn from this? To show that Beyond Meats protein is just good as alternative protein on the market the brand has partnered with NBA players like Kyrie Irving and Chris Paul who are not only brand ambassadors but are also investors in the company. This is the first time a vegan meat alternative has been merchandised in the meat department at Whole Foods Market.After that Beyond Meatstarted calling itself:the worldsfirst plant-based burger sold in the meat case of U.S. grocery stores.. . Placing its hamburgers and breakfast proteins in major quick-service restaurant chains was a logical approach to igniting brand awareness. The company's second-quarter 2020. Figure 8: Current Valuation Implies Massive Revenue Growth, Significant Downside in a More Realistic Scenario. Economic earnings, which account for the unusual items on the income statement and changes to the balance sheet, are negative $6 million and declining over the TTM, even as adjusted EBITDA is positive and rising. Figure 10 shows the implied values for BYND assuming Kraft Heinz wants to achieve an ROIC on the acquisition that equals its WACC of 4.4%. These days, fewer investors pay attention to fundamentals and the red flags buried in financial filings. Learn More. Eat What You Love Additionally, Beyond Meat is introducing its plant-based meatballs in Coles, the second largest supermarket chain in Australia with over 2,500 stores. We're here to help brands make better marketing decisions by delivering world-class, scalable insights. Not knowing what is in the hot dog, not knowing where the hot dog came from, the conditions of the animals at the house in which the meat was slaughtered. Shares have fallen 10% since news onJune 25, 2020that McDonalds was discontinuing testing of a plant-based burger it dubbed the PLT made with a Beyond Meat patty in several Canadian markets.