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Beyond Meat Has a Good Problem, Too Bad Investors Don't Like It

Sejuti Banerjea

Beyond Meat BYND shares took a beating this week as the alternative protein supplier made the most of its soaring valuation to raise some more capital.


The dilution to existing shareholders notwithstanding, this was a really good move to raise a neat $40 million by issuing just 250,000 additional shares. The IPO price of $25 a share fetched just $240 million.

Some early investors also took profits, which is one of the concerns people seem to have because usually, insider sales are a red flag that means the company isn’t headed in the right direction.

But honestly, there doesn’t appear to be reason for fear, not on this count anyway. Because first, they are offloading just a teensy bit of their holdings (totaling 3 million shares) and second, the company is putting up towering growth numbers that really makes it look like they underpriced the shares at the IPO. The insiders were released from their legally required six-month long lock-in period, which must count for something!

And as far as growth is concerned, which number would you rather pick?

Revenue growth in the just-reported quarter was 67.3% and 287.2% from the previous and year-ago quarters, respectively. Take your pick.

The Fresh platform (by far its larger segment) grew 74.5% sequentially and 347.9% from last year.

The emerging Frozen platform grew 25.0% sequentially and 25.1% year over year.

Retail (50.7% of sales) was up 74.3% sequentially and 192.0% year over year.

Restaurant & Foodservice (49.3%) was up 60.6% and 483.0%, from the two periods, respectively.

It’s hard to find a weak spot, but one does wonder why the company needs to offer such a hefty discount, which grew 96.3% sequentially and 170.6% year over year (more on this in a minute). The company still managed to expand its gross margin, which went from 15.0% a year ago to 33.8% in the last quarter.

Moreover, positive EBITDA (earnings before interest, tax, depreciation and amortization) is not just in sight, it’s a reality today. So in the last quarter, adjusted EBITDA came in at $6.9 million compared to -$5.6 million last year.

We can’t even complain about the net loss, which at 24 cents a share, shrank from $1.22 last year. The pro forma profit of a penny was better than the Zacks Consensus Estimate of an 8 cent loss.

The company even raised its full-year guidance.

To sustain such high growth rates, it’s only natural that the company would need to invest in capacity. And this is actually value creation, because if numbers are to get anywhere close to justifying the sky-high valuation, the company has got to keep the growth rates up. And there are opportunities both in the domestic market and internationally, because soy-free, gluten-free, plant-based, responsibly-sourced processed stuff is just so much in demand! The company just can’t seem to sell enough, which is a good problem to have.

We should of course consider competition, which will no doubt intensify somewhere down the line, from both existing fresh/frozen/processed meat producers and vegan suppliers like Beyond Meat. This will pressure supplier sources for inputs (it recently expanded suppliers, which is another positive) on the one hand and prices on the other.

For many, the vegan burger is a novelty and they’ll just go back to what they were eating earlier, or it’ll be more like a once-in-a-while sort of thing. So the $1.4 trillion meat market, which is what alternative meats are looking to eat into, is also part of the competition.

Producing plant meat is more expensive than traditional meats, which is likely the main reason for the heavy discount on its products. But that day may not be far away when the benefits of scale reduce/eliminate the difference.

While the gross margin expansion looks attractive now, it’s an obvious indication of improving utilization. So when the company adds capacity sometime next year, those numbers aren’t going to look as good. But it wouldn’t be something to panic over either.


For a company with the kind of solid fundamentals that Beyond Meat is displaying and more importantly, the kind of growth it is seeing, there shouldn’t be so much concern. In fact, we should probably not look at the numbers from a quarter-to-quarter perspective, other than to see that it remains on track directionally.

The volatility in share prices is because of the high valuation with many investors expecting the shares to tank (this is a heavily shorted stock). The new shares will increase the float, there could even be more volatility with prices receding to a more realistic level, where it could be worth a buy. So it’s all good.


Since we can’t recommend BYND at the current valuation and therefore have a Hold rating (Zacks Rank #3) on it, there are other buy-ranked stocks in the space such as BRF S.A. BRFS, Campbell Soup Company CPB, Freshpet FRPT, General Mills GIS and others. If you’d like a more varied exposure, head over to the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.


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