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Why I Bought Beyond Meat Stock Now

By Jon Quast - Apr 25, 2020 at 8:20AM

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I'm not a vegetarian, but I took a bite of this plant-based protein company.

Ethan Brown envisioned helping the environment by creating meat-alternative products out of plants, so he founded Beyond Meat (BYND 0.36%). The company is flourishing, largely due to landing on the menus of casual-dining and fast-food restaurant chains around the country. However, restaurant dining rooms are currently closed because of the COVID-19 pandemic.

Beyond Meat reported 2019 revenue of $298 million, up 239% from 2018. In late February, it guided for $490 million to $510 million in revenue for 2020 -- good for 64% to 71% growth year over year. But that was before the coronavirus. Since restaurant sales are slumping, conventional wisdom says to throw Beyond Meat's guidance -- and stock -- out the window. 

That's misguided, though. Here's why.

A hamburger sitting in front of the packaging for Beyond Meat's Beyond Burger product

Image source: Beyond Meat.

Conservative guidance?

One wouldn't normally expect guidance for 64% to 71% revenue growth to be conservative. But regarding guidance, Brown said during Beyond Meat's Q4 earnings call, "We don't build in expected customers, we build in only those which we've won." In other words, any new partnerships in 2020 would be icing on top of Beyond Meat's previously-guided cake.

Beyond Meat has existing business with chains such as Dunkin' and Denny's, but there are multiple growth levers it can pull this year to make up for the sales it is losing from the coronavirus.

  • New restaurant partner. In Canada, it's testing a burger with McDonald's, the largest restaurant chain in the world.
  • New product line. In the U.S., it's attempting to roll out Beyond Fried Chicken on Yum! Brands' KFC menu. It doesn't currently have a chicken-alternative product.
  • New market. In February, the company committed to enter China in 2020.

None of this is built into guidance, which is why I decided not to wait any longer to buy Beyond Meat's stock. And I'm glad I bought before it announced its new partnership with Starbucks in China. The company has launched three menu items in more than 3,300 Chinese Starbucks locations. This is an important first step to building brand awareness in China, the world's most populous nation. 

These pending growth levers are simply why I bought now. But here are a few reasons why I like Beyond Meat in the first place.

The Beyond Beef Spicy & Sour Wrap

The Beyond Beef Spicy & Sour Wrap will be on menus at Starbucks in China. Image source: Starbucks.

What I like

Founder-led companies are a great place to look for market-beating investments, and Brown from Beyond Meat is a visionary. He doesn't just aspire to run a premier alternative-meat company. Rather, he's trying to build one of the largest meat companies, period. He's spoken publicly about someday reaching $40 billion in revenue. For perspective, Tyson generated $42 billion in 2019.

The strategy to reach such lofty revenue goals was to creatively spark a movement among non-vegetarian consumers. After all, there are far more meat-eaters than vegetarians. According to Gallup polls, the percentage of the population that identifies as vegetarian has been quite stable over the past two decades. Despite the lack of growth in vegetarianism, plant-based meat sales grew 18% in 2019, according to the Plant Based Foods Association. That's six times the 3% growth of traditional meat sales.

These stats taken together suggest that non-vegetarians are the ones buying meat alternatives. If Beyond Meat can entice meat-eaters to buy an alternative, at least occasionally, this company will have years of robust growth ahead.

Investing in initial public offerings (IPOs) is tricky, and a good approach is to wait for the company to establish a pattern of either meeting or missing investor expectations. Beyond Meat gave 2019 revenue guidance of $210 million shortly after going public. It then raised its full-year guidance when reporting its results for the second and third quarters and ultimately beat elevated expectations with its fourth-quarter earnings report. That's a young track record I can get behind.

A red exclamation point in an empty room

Image source: Getty Images.


A Beyond Meat investment isn't beyond risk, though. The greatest risk, in my opinion, is demand. The company's popularity in restaurants and supermarkets right now could just be fleeting consumer curiosity. To assess this possibility, I've waited on the sidelines to see how comparable sales at restaurants hold up over time. But now that restaurants are closed, restaurant sales won't be an accurate measurement of this risk for some time.

Another risk is the fact that this high-growth stock isn't trading at a cheap valuation. Assuming Beyond Meat hits $500 million in revenue in 2020 (the midpoint of its guidance), the stock trades for more than 13 times forward sales. And the company doesn't have any bottom-line profits, since it's reinvesting in its growth. This nose-bleed valuation is why I only started a small position, but I'll consider adding more in time.

In closing

Beyond Meat is a premium-priced growth stock. But with new partnerships, geographies, and products set to come on line in 2020, I believe now is as good a time as any to invest in this disruptive founder-led company.

Jon Quast owns shares of Beyond Meat, Inc. The Motley Fool owns shares of and recommends Starbucks. The Motley Fool recommends Beyond Meat, Inc. and Dunkin' Brands Group. The Motley Fool has a disclosure policy.

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