Since its epic rise after its IPO in 2019, the stock for plant-based-protein pioneer Beyond Meat (NASDAQ:BYND) has been stuck in a sideways action. The company has been hit by a flood of new competition, a pandemic, and a steady stream of bearish calls lambasting the high-flying stock's valuation. In spite of all this, though, the company has managed to stay (just barely at times) in growth mode.
As 2021 gets underway, the extended slumber for this next-gen food stock could be ready to reverse course. Here's why.
This is one way for a stock to crash
After the extreme optimism in the months following its IPO, Beyond Meat stock has been a roller coaster ride. It's dropped, it's made several attempts to run higher, but ultimately it has come back to the same station from which it started almost two years ago: a market cap just shy of $9 billion.
Is it a beef patty, or a plant-based one? It's harder to tell these days. Image source: Getty Images.
This kind of volatile sideways action is one way for a stock to "crash." Since the irrational exuberance wore off in the summer of 2019, Beyond Meat stock is sitting at essentially a 0% return. Meanwhile, the S&P 500 is up 33%.
Data by YCharts.
As previously mentioned, though, Beyond Meat itself has continued to grow its business. Even in 2020, it weathered the COVID-19 storm and was able to maintain some positive traction disrupting the massive animal-based protein industry. Foodservice sales -- those made to restaurants -- took a sizable hit as consumers chose to eat at home during the pandemic, but retail sales via its grocery store distributors more than picked up the slack.
|
Period |
Total Sales |
Change (YOY) |
|---|---|---|
|
Q1 2020 |
$97.1 million |
141% |
|
Q2 2020 |
$113 million |
69% |
|
Q3 2020 |
$94.4 million |
3% |
|
Q4 2020 |
$102 million |
4% |
Data source: Beyond Meat. YOY = year over year.
Granted, none of this means Beyond Meat shares are trading for some sort of bargain. At 22 times trailing-12-month sales and not reporting much in the way of meaningful profits yet (adjusted EBITDA was just $11.8 million in 2020 on total revenue of $407 million), suffice to say Beyond Meat is expected to return to rapid expansion in 2021 and, well, beyond.
Powerful brand recognition in an otherwise commoditized marketplace
I think there's a good chance the implied growth shareholders are expecting will transpire. With the economy reopening, consumers will start returning to restaurants. And restaurants themselves will start to normalize their supply chains, too. Simplified menus with fewer options -- an attempt to cut expenses -- hurt Beyond Meat as much as lower customer foot traffic did.
But this is more than an economic reopening bet. Beyond Meat and its peer Impossible Foods are on a mission to reduce animal protein consumption and promote more economically friendly practices. The message continues to win over fans. Some fast followers among food supplier incumbents have benefited, too (like Nestle and its Sweet Earth subsidiary). But as competition mounts and pricing on plant-based protein products falls, Beyond Meat has done a pretty good job holding on to some profit margin. Increasing retail and foodservice distribution will help this cause over time now that it's built out its manufacturing capabilities. Given the multiple dynamics behind the plant-based protein movement, Beyond Meat is looking increasingly less like a fad (hard seltzer, anyone?) and more like a potential long-term trend.
Here's another case in point: It's rare for restaurants to name their supplier in marketing campaigns. But there are exceptions. Think Coca-Cola products with fiercely loyal fans of its drinks, PepsiCo and its drinks and snack foods, or the "Certified Angus Beef" trademark. To pique diner interest, a restaurant might name drop a key food supplier if it has brand power. It's early in the game, but Beyond Meat is exhibiting this kind of consumer awareness and brand loyalty. When's the last time you saw a fast-food company tout carrying Sweet Earth burger patties? Beyond Meat, by contrast, often gets mentioned. And it continues to forge relationships within foodservice -- most recently inking new deals with two of world's largest chains, McDonald's and Yum! Brands.
I'm not saying to go out and load up on Beyond Meat stock as the economy (and consumer spending) starts to normalize. A lot is riding on the plant-based food company returning to rapid growth, and with the effects of the pandemic still ongoing, those efforts could be derailed. However, if it does recapture some double-digit percentage expansion, 2021 could be the year Beyond Meat stock shines once more.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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