Plant-based proteins are rapidly gaining popularity as a meat substitute. Purists may not like it, yet the trend is accelerating, observes Jon Markman, editor of Strategic Advantage.
Beyond Meat Inc. (BYND) recently 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, Calif.-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. Managers used the proceeds of the IPO to build out supply chains and Sanjay Shah, an Amazon (AMZN) logistics veteran, joined Beyond in September 2019 as chief operating officer.
Within a year, Shah had distribution deals in place with Walmart Inc. (WMT), Target (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, and Dunkin’ Donuts now showcase Beyond products. And in January, the company announced an agreement with PepsiCo Inc. 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.
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. Investor should strongly consider using near-term weakness in the days ahead as a potential buying opportunity.
