27 Sep

Beyond Meat Rose 11%: Will the Momentum Continue?

WRITTEN BY Namrata Sen Chanda

Soon, plant-based meat might find its way into your favorite McDonald’s (MCD) burgers. Beyond Meat (BYND) rose 11.5% on Thursday. McDonald’s announced that it’s testing a PLT (plant, lettuce, and tomato) burger in Southwestern Ontario. McDonald’s will offer plant-based burgers for a limited time. However, the news didn’t impact McDonald’s shares.

Is a meatless burger the new flavor?

The massive success of Burger King’s Impossible Whopper a month after its launch in August got everyone’s attention. Burger King partnered with Impossible Foods, which offers soy protein burgers. Beyond Meat’s burger patties contain pea proteins. Plant-based food is a hot market. As a result, McDonald’s wants a larger piece of the market. In Germany, McDonald’s has been testing a soy-based burger from Nestle. UBS expects plant-based protein and meat alternatives to grow from $4.6 billion in 2018 to $85 billion in 2030. The segment’s growth prospects lured plant-based meat companies and fast-food chains. Meat alternatives continue to expand due to the rise in veganism and health consciousness.

Beyond Meat’s stock price movement

Beyond Meat stock rose 135% on its opening day in May. Notably, the company was one of the first plant-based food companies to go public. Based on the closing price of $154.34 on Thursday, Beyond Meat stock has risen more than 500% since its IPO. The stock reached its all-time high at $239.71 in July. However, the stock fell below $200 after the company announced a secondary stock offering. The company offered the new shares at $160 per share, which is more than six times the price of its IPO. In September, the shares only traded in the range of $150–$165. The volatility in stocks is lower than August with minor fluctuations. Analysts have set a target price of $163.67, which is 6.04% above the company’s current price.

According to CNBC, Beyond Meat stock was valued at 44x its sales during the IPO, which is similar to technology companies. Food manufacturers usually have a price-to-sales ratio below 3. Hormel Foods (HRL) has a price-to-sales ratio of 2.5, while Tyson Foods (TSN) is at 0.76 and Conagra Brands (CAG) is at 1.35. Currently, Beyond Meat has a price-to-sales ratio of 56.21. Analysts have always seen a problem with the company’s sky-high valuations. In June, J.P. Morgan downgraded the stock from “overweight” to “neutral” due to valuation concerns. However, the upbeat first-quarter results and better-than-expected revenue guidance renewed the optimism in Beyond Meat.

Long-term partnerships are the key to sustained growth

Jefferies analyst, Kevin Grundy, indicated that Beyond Meat’s collaboration with McDonald’s could be a big thing. The company’s PLT burgers could be sold through 38,000 McDonalds outlets globally. Grundy said that if the company enters into a long-term relationship with McDonald’s, it could add $50 million–$285 million to its annual revenues. Notably, the guidance from Beyond Meat’s management indicates yearly revenues of $210 million. In contrast, analysts expect the yearly revenues to be $221.2 million. The potential partnership could have a significant impact on Beyond Meat.

Beyond Meat’s stock performance caused excitement and stoked concerns. Most investors are betting high on the stock due to the industry’s growth prospects. However, many investors are skeptical. Considering the high stock valuation, investors will be disappointed if the company doesn’t perform well.

The company needs to get more long-term contracts to maintain the growth momentum. Beyond Meat already has names like Dunkin’ Brands, Carl’s Jr., TGI Fridays, and Del Taco under its belt. However, Tim Horton’s pulled the company’s sausages and burgers from a few of its chains after the offer period. We’ll have to wait for the McDonald’s partnership outcome to gauge the deal’s potential.

Retail popularity has also helped Beyond Meat. The company has deals with leading grocery stores like Kroger (KR) to place its products right beside animal meat. Seth Goldman, the company’s executive chairman, said, “Being sold alongside animal meat is absolutely critical.”

The plant-based meat space is crowded. Apart from Impossible Foods and Nestle, Kelloggs (K) and Tyson Foods plan to have meat alternatives. Survival in the plant-based meat space requires stable sales and constant product innovation through research and development.

Conagra Brands rose 3.68% and closed at $31 on Thursday. Meanwhile, Hormel Foods and Tyson Foods both rose 0.5%.

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