Plant-based proteins are rapidly gaining popularity as a meat substitute. Purists may not like it, yet the trend is accelerating.
Last week, Beyond Meat Inc. (Nasdaq: BYND) reported that second-quarter revenues and gross profits jumped about 32%. Shares got walloped because net profits continued to move in the wrong direction.
Longer term investors should strongly consider using recent weakness as a buying opportunity.
Plant-based meat substitutes are expected to grow into an $85 billion market by 2030, according to an October report in The New York Times. That’s a big opportunity that Beyond Meat looks poised to win.
The El Segundo, California-based company went public in a hot initial public offering (IPO) in May 2019.
Shares debuted at $25 and quickly shot up to $65.75, a staggering 135% opening day gain. Then, within a year, the stock reached $240 for a market capitalization of $14.8 billion.
That valuation is far out of the normal for a “food business.”
Beyond Meat traded then like it does now: as a technology company.
Investors bought into the big idea that Beyond is blazing a new trail in diet. The idea is to slowly move the needle in the $11.7 trillion global food industry.
From the beginning, the company invested heavily in scale and human resources.
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Managers used the proceeds of the IPO to build out supply chains and Sanjay Shah, an Amazon.com Inc. (Nasdaq: AMZN) logistics veteran, joined Beyond in September 2019 as chief operating officer. Within a year, Shah had distribution deals in place with Walmart Inc. (NYSE: WMT), Target (NYSE: TGT) and the major grocery store chains in Canada and Europe.
Beyond executives also began courting the quick service restaurant industry.
Firms like Carl’s Jr., Del Taco Resturants (Nasdaq: TACO), and Dunkin’ Donuts now showcase Beyond products.
And in January, the company announced an agreement with PepsiCo Inc. (Nasdaq: PEP) to jointly develop plant-based proteins for snacks and beverages.
Today, company managers say Beyond products are available in 112,000 grocery stores, restaurants, hotels and universities.
Plant-based chicken nuggets and tenders are now rolling out to grocery stores and fast food chains. Meanwhile, progress with production capabilities is accelerating.
In a press release following second-quarter financial results, CEO Ethan Brown noted that Beyond is making weekly sequential production gains from its factories in the European Union and China.
Net revenues increased to $149.4 million, a gain of 31.8% year over year. Gross profit was $47.4 million, for a gross margin of 31.7%.
However, losses from operations swelled to $18.6 million compared to $8.2 million a year ago.
Brown explained the losses reflect increased headcount at production facilities.
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Like other tech trends, scale will determine the winners.
Beyond Meat is the category killer in plant-based proteins, the fastest growing part of the food services ecosystem.
Unfortunately, the segment buildout has been crippled by two years of COVID-19 complications.
That will change, and when it does, no company will be able to match the production scale of Beyond.
Shares traded back to $113 on the Q2 results, but have since rebounded and are currently trading around $123.28.
Savvy investors should strongly consider using near-term weakness as a potential buying opportunity.
Best wishes,
Jon D. Markman
