I’ve been recommending Beyond Meat BYND since the March lows this year and explaining why I think it’s such a great opportunity. If you’re unfamiliar with this stock, let me tell you that it’s up 157.9% year to date and 240% from its March lows.
Every time I want to talk about it, I find a lot of negative commentary. Practically nobody advises getting into it because it’s so overvalued. And the other reason is the rising competition from privately-held Impossible Foods (and others), as well as all the meat producers that make up the $1.5 trillion meat market that Beyond Meat seeks to disrupt. And yet, this un-recommended stock goes higher and higher, followed by the same commentary, repeated over and over.
The big question is therefore about the chances of further upside given its great run this year in the face of rising competition. It actually boils down to your investing goals, and the length of time you want to hold the shares.
Because if you’re looking in the near term and trying to time the market, obviously there’s somewhat more risk involved. In the near term, big players get into and out of stocks, which increases volatility and downside risk. This is especially true for growth stocks because it’s relatively more difficult to arrive at the true valuation. The thing that drives a growth stock is the expected/perceived growth potential. So even if a stock appears overvalued, it may still move further up.
If you’re looking to stay invested for a relatively longer time, say three to five years, you’d see some of the gains from the real story behind the stock.
And that story revolves around the fact that it feeds new trends in healthier living that have been developing over a number of years. People hardly talked about things like vegan/vegetarian, chemical-free, GMO-free, hormone-free, gluten-free and so on a decade or two ago. But this conversation has been gathering momentum in the last 5-6 years. This is a mega trend today that Beyond Meat is at the forefront of.
People are also becoming increasingly conscious about the environmental impact of what they consume. And meat production is of course resource intensive while also producing harmful gases. A plant-based source of protein cuts down on water and land while also minimizing the environmental impact.
The next thing you should consider when investing in a stock for the longer term is its innovativeness. Beyond Meat has really gone that extra mile to offer quality plant-based protein using the healthiest of ingredients. The company has also kept new products coming in at regular intervals. So from the burger patty we moved on to breakfast sausages and meatballs, and then “stringed” breakfast sausages. We don’t know what they’ll do next, which is a great thing.
Another good thing about the plant-based category is the scope for differentiation. In meats, you know what it tastes like; different companies don’t make it different. But in Beyond’s case, while the company works to perfect a meat-like experience, the taste is unique enough to allow distinction between meat and Beyond Meat and other plant-based or semi-plant-based alternatives. This means that if you can get people to like the uniqueness, they will keep coming back for more. And unlike other meats, only Beyond Meat makes this product.
After partnering with Starbucks SBUX, Yum Brands China YUMC, Alibaba BABA and French food distributor Sinodis to distribute its products in China, the company has also officially announced a new plant near Shanghai for local production of plant-based beef, pork and chicken. The Chinese market for faux meat is mature, diverse and huge, and Beyond Meat appears to be doing well there. With local production and distribution, there will be greater efficiencies, lower costs and consequently, higher profits from the region.
Moreover, the Chinese government is interested in food tech for domestic consumption and export. As far as pea production is concerned, China is growing into a major producer (ResearchAndMarkets estimates the market to grow at a CAGR of 9.6% from 2018 to 2023 with Shandong Jianyuan Group and Yantai Oriental Protein Tech Co being the largest producers and many smaller players entering the market). So ingredient sourcing should be easy and operations should be blessed by the government. Which means that the China opportunity is HUGE.
Finally, a company does best when it has able, versatile, competent, motivated and passionate leadership. And that’s exactly what we’ve seen this year. Beyond Meat was tied with a large number of smaller scale foodservice partners that were particularly hard-hit by the pandemic. But management adjusted to the situation quickly by ramping up retail distribution through 5,000 new stores leveraging partnerships with Kroger KR, Harris Teeter, Target TGT, Publix and Walmart WMT. It expanded in the UK through 372 Sainsbury grocery stores and 41 Gourmet Burger Kitchen restaurants. It expanded into China and announced a new plant there. It launched new products.
Beyond Meat shares Zacks Rank #3, but you have to remember that this is a short-term rating. So things like valuation and earnings surprises influence it. Most analysts agree that its long term growth story is solid.
You can also invest in ETFs for exposure to BYND-
First Trust Consumer Staples AlphaDEX ETF FXG: This medium-risk ETF focused on the U.S. market has $252.3 million under management. The expense ratio is 0.64%. The shares are up 18.1% in the last six months. The dividend yields 1.60%. BYND weighting is 3.98%.
Renaissance IPO ETF IPO: This medium-risk ETF focused on developed markets has $214.4 million under management. The expense ratio is 0.60%. The shares are up 104.3% in the last six months. The dividend yields 0.23%. BYND weighting is 2.85%.
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