Shares of Beyond Meat (NASDAQ:BYND) rose over 21% today as investors anticipated the announcement of a congressional agreement on a nearly $2 trillion stimulus package. Details of the economic plan weren't available at the time of this writing, but previous reports suggested there would be a heavy focus on boosting the economic health of individual consumers, restaurants, and workers most affected by city and state lockdowns.
While most stocks rose in anticipation of federal action to soften the coming economic crash, the animal-free protein developer has a lot riding on the health of the economy. As of 12:22 p.m. EDT, the growth stock had settled to a 18.3% gain. The S&P 500 was up 7.6%. But it could be premature.
It seems like forever ago now, but last year investors rejoiced after each and every announcement of a national food chain partnering with an animal-free protein developer. The top tier of the competition basically came down to Beyond Meat and Impossible Foods, with each scoring big wins among the largest restaurant and fast-food chains.
Beyond Meat grew restaurant and foodservice revenue from $7 million in 2017 to $153 million in 2019. The segment grew from 22% of total revenue to 51% of total revenue in that span, with retail sales accounting for the remainder.
There's nothing wrong with the company becoming increasingly dependent on restaurants for growth, except efforts to contain the novel coronavirus pandemic have shut down restaurants across the United States and in many countries around the globe.
Therefore, investors are closely watching just how painful government lockdowns will prove to be for the restaurant industry. If the coming fiscal stimulus helps to soften the blow, then it could allow more restaurants to restart operations with fewer obstacles. That's what investors are focusing on today, anyway.
Despite being heavily dependent on restaurants for revenue and growth, Beyond Meat is relatively well positioned to weather a mild to moderate economic storm. The business began 2020 with $276 million in cash and reported a full-year 2019 operating loss of less than $0.5 million. It should also receive a bump in retail revenue from panic-buying among American consumers.
That said, investors should expect that the worst is yet to come for Beyond Meat and the economy more broadly. Economic stimulus is meant to soften the economic blow, not avoid it altogether. The novel coronavirus pandemic and efforts to mitigate its impact on public health are likely to continue for the next month at least. Once lockdowns are eased, it could take time for restaurants to ramp up foot traffic again, and a recession is likely to occur.
Long story short: Beyond Meat remains well positioned for the long haul, but there's sure to be more pain on the way in the short term.