Consumers have gotten really excited about Beyond Meat (NASDAQ:BYND) and its plant-based meat substitute products. So far, the company has lived up to the hype as sales have more than doubled year over year. The problem is that the company trades for more than 50 times revenue and that number is almost certainly too optimistic. The big question is what the actual demand is and how big the company can really be.
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This video was recorded on July 30, 2019.
Jason Moser: Let's take a little bit of a different direction here. We're moving beyond e-commerce and going into the market of meat substitutes. I'm still not used to saying that, but hey, we'll figure out how we can make this work. When we talk about Beyond Meat, obviously a tremendous first few months here in the market after its IPO. The stock has been on fire. Their first quarter results came out last night. It was a lot of what we expected. Tremendous top line growth. They're not profitable. The stock now is trading at around 55X full-year sales estimates. In virtually any market, that's crazy. But we also understand the reason -- there's a lot of excitement around this company and what they're doing.
Dan Kline: People like the product. They also like the momentum it has. We're going to talk very briefly later in the show about Dunkin' Donuts. Dunkin' Donuts added a Beyond Meat sausage, and that got an enormous amount of attention. What's not going to get an enormous amount of attention is the very tiny amount of people that go to Dunkin' Donuts and order a Beyond Meat sausage sandwich. Yes, there's a certain person who maybe is at a Dunkin' Donuts that's the customer for that. But we've seen over and over with McDonald's that a pivot to healthy is rejected by consumers. You don't go to McDonald's for healthy. A lot of the places, it's like, yes, it's very good when an upper-end restaurant adds a Beyond Meat product because then you're serving a wider audience. But when a fast food chain does it, that's a gimmick. I really question whether someone who really takes care of themselves and makes good food choices was going to McDonald's -- McDonald's isn't actually serving this, but Burger King is, or Dunkin' Donuts -- just to get this. So, yeah, maybe there's some incremental sales in "person who's stuck at the airport looking for a healthy choice," but I'm not sure the underlying excitement of all the places that are picking this up is going to translate into long-term sales. And I've said this before -- I eat largely gluten-free, and a lot of places add gluten-free items, and then six months later -- again, Dunkin' Donuts is a great example -- they had a gluten-free donut, and it sold through once and then it went away and you never saw it again. I worry about that for Beyond Meat. I do feel like it's a gimmick. If you're a vegetarian, I'm not sure you want a cheeseburger.
Moser: I agree with you there. I'm not a vegetarian. I would imagine that a vegetarian would be looking at something other than a burger anyway. When it comes to the restaurant, you do have to wonder, longer-term, is the juice worth the squeeze here? We know that when it comes to restaurants, the more dynamic you add to that menu, the more you have to manage. And when you're talking about a meat substitute, obviously very new to the market. They haven't even gotten their supply chain figured out fully either. But to your point, too, I don't think people are going to a fast food restaurant for that type of transaction. Yeah, I agree, they're not going there to eat healthier.
Now, the flip side of that is, I do think feel like in a lot of cases, it seems like to me with these types of offerings, the fast food industry is probably where it's the easiest to make that switch. In other words, I feel like your meat substitute is probably going to be something that's fairly similar to the meat that was already being used in the product before. It seems like you probably wouldn't see the difference.
Kline: Yeah, it's the difference between offering chicken or beef. It's a very simple switch from a production line point of view. But you also have the question of, are they going to order it -- and I don't want to sound super negative on this company. I think from all accounts, it's a good product, there's a lot of growth for it. I think the home market for families that have vegetarians and non-vegetarians to be able to throw a veggie burger on the grill next to the regular burgers -- maybe a little bit away from the regular burgers -- I definitely think there's a very strong market for that. But look, their sales increased by 287%. I don't think that's a sustainable growth rate.
Moser: Coming off a small base, too, let's be honest.
Kline: Right. And they have a position, and it's a very challenging position, where they have to make capacity decisions. And at some point, they're going to say, "Let's hold off a little bit," or they're going to build too much capacity. They've done a very good job so far of managing growth, keeping their loss very tight. But this isn't a small business where they can build out capacity as needed. These are factories, essentially. It is a very expensive game to play. I think there's a nice product line here. I think it's a good acquisition target when the stock crashes. I'm not sure it's a high-growth company the way investors are treating it.
Moser: Yeah. You said "when the stock crashes." I tend to agree with you there. I feel like it's just a matter of time. It's a valuation that makes zero sense, particularly in a market where there are so many substitutes out there. I'm not talking about the company out there that's trying to make the same type of product as Beyond Meat. I'm talking about all of the different dietary options that are out there. There's a million substitutes out there.
Kline: You mean, not even meat?
Moser: Not even meat, or a black bean burger, or whatever. There's a million different ways you can change your menu to accommodate whatever you're trying to do. I guess there are some questions as to the general health benefits of this product at this point. There is still somewhat of an unknown when it comes to the real health trade-off there, isn't there?
Kline: Yeah. Look, I don't want to compare this to vaping. Obviously, we're pretty sure that bringing anything into your lungs is bad for you. But this is one of those ideas that, because it's plants, it's good. Do you remember when everyone thought, "Oh, wow, McDonald's and Wendy's have salads! Those must be good for you!" Then you realize that they're salads with bleu cheese dressing and fried chicken. The study would come out like, "A fast food chain salad is actually worse than eating two Big Macs." I'm not saying that's the case here. But this might turn out to not be as beneficial as people think it is to their health.
And obviously, eating less meat is good for the planet. There's lots of benefits to this. But there is another shoe that's going to drop, and that is that about 3.25 million shares of stock are being put into the market partially by insiders who want to cash out, and a very small amount -- about 250,000 -- by the company for added proceeds. While that's only 3.25 million in about a 60 million float, it's still a sign of the insiders going like, "Hmm, maybe let's get while the getting's good." That has to make you a little bit nervous.
Moser: I think that's a very reasonable way to look at it.