Updated: Feb 4
Current price: $115.40 (pre-market)
Market cap: 7.17B
Overall assessment: BUY
Why did BYND pique my interest?
Growth in the recent month after a big decline
Stock price growth on large volume (volume up multiple times)
With the high volume of trading, the buzz for the stock also increased: stocktwits.com tweets up 9 times.
Growth in sales and profit (EPS).
A disruptive company with a lot of press coverage, PR.
Strong projected EPS growth in the next 2 years.
Expanding Trials of Beyond Meat burgers at McDonald’s in Canada https://www.reuters.com/article/us-mcdonald-s-beyond-meat/mcdonalds-expands-beyond-meat-burger-trial-to-52-outlets-in-canada-idUSKBN1Z71F7
Reports on Starbucks looking to add plant-based food options in their menu: all eyes at BYND for potential partnership. While Starbucks did not say, it will go for BYND partnership, stock rallies on hopes. https://investorplace.com/2020/01/stock-market-today-coronavirus-stokes-fear-uber-stock-rallies/?cc=referral&cp=nasdaq
However, on the negative side, news came in yesterday that Restaurant Brands International Inc. subsidiary Tim Hortons has stopped selling Beyond Meat Inc. This is bad as Tim Hortons is a large chain of coffee/donut/food chain in Canada (more popular than Starbucks). Tim Hortons started selling the products across Canada in June 2018.
This will likely result in revisions of forecast EPS, price targets from analysts in the next few weeks.
Also, there is no partnership with McDonald's yet as it is still testing Beyond Meat burgers. Starbucks partnership is just a rumor yet. Also, while I do see how McDonald's maybe a major partner for Beyond Meat due to the volume of meat they sell, Starbucks is less likely to drive a huge volume of sales of Beyond Meat products.
With the current estimated EPS of $0.35 to $0.39 for 2020, the stock forward PE ratio is ranging from 342 to 307, which is very high. Predictions for 2021 (obviously less reliable) are at $0.80. Even then, PE is going to be 150. The company is overpriced. However, below we will check assumptions and will see that potentially the upside for the company is much higher.
The company continues to issue shares to fund its operations and growth, which dilutes its profit and reduces EPS.
Overall, looks very risky now with a lot of hopes, projects, and a major partner walking away. Indeed, if the partnership with McDonald’s works out, this is going to be huge, much bigger than Tim Hortons, but that’s only when the partnership with McDonald’s is in Beyond Meat’s hands.
BYND Overview: company, category description
Beyond Meat, Inc. engages in the provision of plant-based meats. Its products include ready-to-cook meat under the brands The Beyond Burger and Beyond Sausage; and frozen meat, namely Beyond Chicken Strips and Beyond Beef Crumbles. The company was founded by Ethan Walden Brown and Brent Taylor in 2009 and is headquartered in El Segundo, CA.
BYND Financial overview
Taking into consideration the loss of Tim Hortons with its Canadian market, let’s see how big the impact is and whether Beyond Meat will recover.
First, there are 2 parts to BYND’s business: Retail and Restaurant/Food Service. The latter gives BYND less than half of its revenue (45% to be exact). This part of the business grew by 312% from Q3 2018 to Q3 of 2019. Retail (55% of the business) grew 212%. Now, we cannot know how much of that Restaurant/Foodservice revenue Tim Hortons represented, but not all of it. We know that in March 2019 restaurant/foodservice part was $20,647,000. Given Tim Hortons introduced Beyond Meat options in June 2018 and it introduced it everywhere, we can say with relative confidence that revenue provided to BYND from Tim Hortons is less than $20M. Additional growth in restaurant/food service revenue is likely coming outside of Tim Hortons as it started to scale back on Beyond Meat beginning of 2019. The best thing, even if Tim Hortons was bringing BYND $20M every quarter, well BYND grew that much in Restaurant/Foodservice in last year. It grew 3 times that revenue across both lines of business.
Let’s look at the long-term outlook:
Based on the extract from the article here: https://www.cnbc.com/2019/06/07/beyond-meat-one-overseas-market-has-desperate-need-for-plant-burger.html
Beyond Meat is booming in the U.S., which has the highest level of animal-based meat consumption per person on a global basis and where meat is the largest category in the food industry, a $270 billion business. The U.S. opportunity is just getting started: Nielsen data shows Beyond Meat has just 2% household penetration in the United States.
But the company has said that the global opportunity is just as compelling — meat is estimated to be a $1.4 trillion market — and that is where some of Beyond Meat’s fastest growth may yet come.
OKAY… Beyond Meat lost $20M in revenue, but the market is like gazillion times bigger. This is like comparing a mouse next to an elephant. There are countries out there where people don’t eat enough protein. Beyond Meat partnered with the protein-producing company.
We understand that plant-based products will never replace meat for most of the people, but currently, Beyond Meat has like 0.136% share of the whole meat market in the USA. And that is just the USA. What if it goes international?
BYND Key financial ratings/Stock Value
So, does the current PE score of 301 right for the company? Let’s look at PEG (price-to-earnings-to growth). The company grew revenue by 250% in revenue YOY. This gives a PEG score of 301/250 = 1.2 which is just slightly above 1. A score of 1 or below is considered to be good. However, that is just revenue. We actually need to look at the growth in Profit (PE). Profit usually grows faster than revenue due to operating leverage. For some companies with every 1% growth in revenue, profit may go up 2-3-5-10 or more percent. For BYND, it is a bit difficult to calculate that leverage as they are lingering around breakeven for profit.
Let’s try to figure it out using the information below:
We will try to calculate that leverage using the historical information and some assumption and will try to see what is going to happen if sales of the company grow 200% next year. Assumptions are:
Gross margin increase. As we can see, BYND was increasing gross margin with more sales. This is likely to it being able to charge higher prices as the product is getting more demand + with more volume; it can demand lower prices from suppliers. We will assume the trend will continue and gross margin will increase from 35% in Q3 2019 to 38% in Q3 2020.
Usually, the growth in revenue expenses rise by a relatively lower amount as you need the same number of main office staff, pay the same amount of interest on the debt, etc. However, just to make sure we don’t go too optimistic we will say that expenses will increase by 50%.
With all that we see that the leverage is 6.5, meaning for every 1% increase in sales profit increases by 6.5%. With a 200% revenue increase, profit increases by 1300%. Now, if we use that for our PEG calculation, it becomes very low: 301/1300 = 0.23. Just to remind stocks with PEG under 1 considered to be undervalued. BYND stock needs to increase 4 times to get to PEG of 1,
The company really does not have problems with liquidity or long-term debt. In fact, some corporate finance people will say its capital structure is not good because it has too little debt for the equity of the company.
BYND has a debt of only 78M, but its cash reserves are $315M due to the recent issue of additional stocks. Also, now that the company is profitable (hopefully it will remain profitable after it lost Tim Hortons), the problems with cash flow should ease.
BYND Analysts Ratings
There was a lot of analyst coverage in 2019. While many analysts are cautious with their predictions and rather state it is a Hold/Perform/Neutral, most recent couple analysts saying the stock price target is $130 to $134, which is still higher than the current price of $120. There will obviously will be revisions in the next few weeks.
Who owns BYND? Changes in BYND ownership
Institutional ownership for BYND is still small, with only 62 institutions owning 10.65% of BYND stock float. However, on the positive note, there are double the companies that open positions in BYND than close. Also, those who invested some time ago are adding more than decreasing. It seems this trend will continue with more and more institutions stepping in and more BYND stock bought by institutions.
BYND Buzz (StockTwits, Investment board)
Conversations on StockTwits for BYND are massive in volume. There are a lot of eyes of public investors on this stock. The sentiment is largely positive with 83.56% being bullish.
Conversation on https://investorshub.advfn.com/Beyond-Meat-BYND-36824/ is good with quite a few participants.
With the size of the market and opportunities for growth, competition is steering up. The good thing BYND was first and had good RnD to have already developed a great line-up of products that taste great.
The risk of not getting McDonald’s as a partner will likely result in a drop in stock price for some time, but as discussed above BYND has enough growth potential in retail business and going after other food chains.
BYND Overall assessment and summary
To sum up, everything that we discussed above:
Yes, the company has its problems as it just lost a client (Tim Hortons). The stock price will likely react in the next few days.
Yes, it is overpriced for the next 2 years.
Yes, competition is starting to raise its head.
Yes, it is still issuing new stocks to finance its growth.
However, there are:
Potential partnership with McDonalds and Starbucks, both are like 100 times bigger than Tim Hortons. It any of those get announced tomorrow, this is likely going to be the last time we saw company stock at $120.
Even if there is no partnership, BYND is just starting to milk this massive market taking such a tiny portion of meat-based products that it has room to grow for the next few decades.
It is growing well the part of the business not related to food chains. Its retail business is growing at a healthy 200%. The penetration of Beyond Meat is just 2% of the USA market. With stronger adoption, it can grow 100%-200% for the next decade.
Based on the calculations above, the stock has great potential in profit (EPS) based on operating leverage. Next time it grows revenue 200% we should expect to see a 1,300% increase in profit. With that PE is going to drastically reduce and price may go up 4 times.
Overall, it is a bit risky. If we don’t see a partnership from McDonalds or Starbucks, the price is likely going to sit in the $90-100 range for the next year. However, BYND is a good buy and hold stock for the next 4-5-10 years with the price likely going up multiple times. If you plan to buy right now, I would give it a few days after the news about Tim Hortons sink in.
My rating: BUY
Have an idea about BYND? You have a different opinion about this stock? I made an error in assumptions? You have additional information to share? Please leave your comments below.