Beyond Meat (NASDAQ: BYND) is the largest plant-based meat company in the world. At $122 today, its share price is 38% lower than its $196 high in July 2019. This price point represents great value to me. In 2016, I invested in Netflix before it became the giant of streaming, and Amazon before it became the king of ecommerce. Both companies’ share prices have since quintupled. I believe that Beyond Meat has the same long-term potential. It releases Q2 earnings tomorrow, and I think the share price will rise swiftly after.
Why Beyond Meat?
Beyond Meat has potential because of its position of strength in this changing world. In the US, 2% of people identify as vegan, and 39% of people incorporate vegan products into their everyday diets. The market for vegan meat alternatives is expected to jump to $7.5bn globally by 2025. In a BBC interview with CEO Ethan Brown yesterday, he stated that “93% of the people that are putting the Beyond burger in their cart are also putting animal protein in.”
This shows that many people now want to reduce their consumption of meat. This can be because they want to limit their impact on the climate, improve their health, or because they are becoming increasingly uncomfortable with the realities of factory farming.
Beyond Meat’s numbers are positive. It has total assets of $1.5bn for FY 2021 Q1, an increase of 185% compared to FY 2020 Q2. Even with the weakening effect of the pandemic, it reported revenue of $108.2m, only a 4.5% decrease compared to FY 2020 Q2. With the hospitality sector reopening worldwide, the company predicted in Q1 that revenue could soar by at least 19% in Q2.
Tackling the risks
I think what’s holding back large scale consumption is the high cost of plant-based meat. Tesco currently sells two Beyond Meat burgers for £4.40, while two comparable beef burgers cost £1.25. However, as the company grows, economics of scale should start to bring the price down. In February, it signed a three-year global deal with multiple fast food outlets including McDonalds, bringing plant-based meat further into mainstream consciousness.
Across the developed world, there is a consensus that meat eating needs to be reduced to tackle climate change. I speculate that special taxes on meat could be in the pipeline, much like there are taxes on alcohol, tobacco, and sugar. To make a Beyond Meat burger, the company uses 99% less water, 90% less CO2, and 93% less land than is needed to make an equivalent beef burger. If taxes rise to cover the environmental cost of animal protein, plant-based meat could also become the more economical choice.
I only invest in things I feel I understand. As an unashamed meat eater, I barbecued a couple of Beyond Meat burgers yesterday. Subjectively, they were fairly close to the real thing.
There are risks though. The company has multiple competitors, such as Impossible Foods, which has recently taken market share by slashing their prices earlier this year. Beyond Meat could run into trouble if their competition catches up to them before they have expanded fast enough to benefit from economies of scale. Their profit margins are also coming under pressure from increased warehousing, transport, and ingredient costs.
However, McDonalds believes in the company’s future. That’s good enough for me.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Charles Archer owns shares of Amazon and Netflix. The Motley Fool UK owns shares of and has recommended Amazon, Beyond Meat, Inc., and Netflix. The Motley Fool UK has recommended Tesco and has recommended the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.