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Where’s the beef? Increasingly not on the menu. But that might not help
Beyond Meat
stock.
While it’s been a tough year for the market overall, it’s been downright dismal for
Beyond Meat
(ticker: BYND), as the former Wall Street favorite has seen its shares tumble 75% since the start of 2022, hurt by factors such as downbeat quarterly results and concerns about increasing competition. Bad behavior from its C-suite hasn’t helped.
That performance seems to be at odds with the world’s growing appetite for plant-based protein, as
Beyond Meat
is the only publicly traded pureplay stock in the industry. Yet it might just be a case of an innovative company in the wrong place at the wrong time.
Demand for meat and dairy alternatives is certainly growing, with estimates putting the category at a robust $85 billion. A growing population means more mouths to feed, and increased hunger around the world calls for innovation, while traditional meat alone seems unequal to the task. It has an outsize negative environmental impact, leads to wide scale animal suffering, and in many forms has been linked to serious health problems.
Of course, if consumers only made healthy choices, the fast food industry wouldn’t exist, and we’d all be beholden to Big Kale.
Instead, some have grown concerned that plant-based protein sales may have already peaked, stunting the narrative that it’s a rapid growth industry—and thus worthy of high premiums.
UBS analyst Charles Eden doesn’t think that is the case. While Nielsen data show that North American sales have been roughly flat this year, he argues today that there are still plenty of catalysts for the products, from rapidly increasing corporate interest to growing interest from restaurants. He’s projecting a 16% compound annual growth rate for plant-based protein through 2027, up to $14.3 billion from about $6 billion last year.
That said, that estimate is a deceleration from his previous 2019 estimate for a 30% CAGR through 2025. He has a Neutral rating on Beyond Meat shares.
At first blush, it should seem a natural beneficiary of these trends. The problem is that even though Beyond Meat remains a major player in a growing industry, it faces ongoing hurdles that have so far offset these catalysts.
One near-term issue is inflation: At a time when consumers’ grocery bills have soared they’re less likely to splurge, and plant-based meat still hasn’t reached price parity with its traditional counterparts. That is down to the high cost of research and development, as well as massive government subsidies that help to artificially cap meat and dairy prices. Although Beyond Meat and privately held Impossible Foods have made progress on this front, among others, it remains a tough sell at a time of overall belt-tightening.
Yet longer-term there are other worries. Plenty of other companies have piled into the space since Beyond Meat went public in 2019, and although more products helps raise consumer awareness and acceptance, it also potentially threatens Beyond Meat’s slice of the pie, while further weighing on prices.
Between this pressure and the need to invest in new products, it’s little wonder then that Beyond Meat is expected to continue being unprofitable through 2024, according to analysts’ estimates. Yet investors may be willing to overlook that, as they have in other growth stocks in the past, for strong sales. Here, however, is another concern. Sales climbed 14.2% in 2021 from the prior year, and are expected to edge just 3.9% higher this year before notching 15.7% growth in 2023, according to consensus estimates
That is not quite the heady growth that distracts from ongoing losses. Moreover, investors may be wary of trusting those numbers, given that Beyond Meat’s top line results have missed expectations seven of the past eight quarters.
Of course Beyond Meat may still overcome these headwinds, bolstered by increasing consumer interest, restaurant partnerships, and new innovations. But it seems like the process may be a longer one than many investors may have hoped during the stock’s previous highs.
A more stable and encouraging sales pattern, when it emerges, could be a good indication that the worst of the pain has passed. Yet with persistently high food prices still at play, there is a chance the company’s next earnings report, due out on Halloween, could once again spook investors.
As a vegetarian, I hope Beyond Meat ultimately thrives. As an investment, I don’t know if it’s safe yet to nibble the stock.
Write to Teresa Rivas at teresa.rivas@barrons.com
Read More: Fake Meat Has a Bright Future. Why Beyond Meat Stock Is Tanking.