If you could buy stock in a company with an expensive valuation or a company with a cheap valuation, which would you choose? Obviously, you'd need more context. And yet, I bet valuation is many investors' top consideration when choosing between Beyond Meat (NASDAQ:BYND) and Keurig Dr Pepper (NASDAQ:KDP)

I see reasons to buy Beyond Meat stock, looking beyond its high valuation of 25 times trailing sales. But I also see reasons to buy Keurig Dr Pepper stock; its reasonable valuation of 18 times forward earnings is just an added bonus. Why should you buy these stocks, and which is a better buy if you can only buy one?

A burger made from a Beyond Meat product, with packaging in the background.

Image source: Beyond Meat.

The case for Beyond Meat

Many pundits believe Beyond Meat will crumble from mounting competition. Established meat producers like Tyson and grocery chains like Kroger are diving into the plant-based meat business. And competitor Impossible Foods recently cut the wholesale price for its products by 15%. This led some to believe Beyond Meat would follow suit, dashing any hopes of growing profits.

However, consider that Beyond Meat's average price per pound was $5.83 in the first quarter of 2020. That was down less than 1% from last year. 

According to organic-food data company SPINS, the U.S. plant-based meat market grew 54% in Q1. Beyond Meat's growth outpaced that, allowing it to gain market share, despite a higher cost per pound than many competitors. 

Of course, this doesn't mean that Beyond Meat won't discount products when it's advantageous. Right now, beef production is down because of COVID-19, and that will likely drive beef prices much higher this summer during prime grilling season. Beyond Meat intends to narrow the price gap further by offering special pricing on value packs. If the price gap between Beyond Meat and beef is negligible, perhaps people will try the plant-based option for the first time.

To be clear, Beyond Meat is offsetting promotional pricing by reducing marketing spend. And it expects to save some money from lower packaging costs. The goal is to preserve profit margins even as it lowers its prices this summer to try to make some new plant-based converts. 

Beyond Meat reported net income of $1.8 million in Q1, surprising Wall Street. It's a testament to the company's growing profit potential as its sales increase. I like Beyond Meat stock as the company gains market share despite increased competition, and preserves profitability despite special pricing.

A carbonated soft drink is poured into a glass against a black background.

Image source: Getty Images.

The case for Keurig Dr Pepper

Keurig Dr Pepper isn't a boring soft drink company from the 1880s. This is a new beverage giant not even two years old. By merging Keurig Green Mountain's coffee prowess with Dr Pepper Snapple's portfolio, I believe the combined business is greater than the sum of its parts. While often seen as the third-place runt in the two-way battle between Coca-Cola and PepsiCo, Keurig Dr Pepper has a nonalcoholic beverage offering for every consumer.

Upon merging, Keurig Dr Pepper's big promise to shareholders was earnings growth. It's committed to 15% to 17% annual adjusted growth in earnings per share from the merger through 2021. For full-year 2019, it reported adjusted EPS of $1.22 for 17.3% growth. And despite the COVID-19 pandemic, the company has reaffirmed its adjusted EPS guidance for 2020 as well.

Over the long term, stock performance correlates in part with earnings. And through cost reductions from the merger and balance sheet improvements, Keurig Dr Pepper is delivering that steady earnings growth. Furthermore, it's paying a dividend yielding north of 2%. It won't dazzle you like a high-growth stock, but it can still reward patient shareholders.

However, there is one growth lever I believe Keurig Dr Pepper could pull someday. In the first quarter of 2020, only 4% of revenue was generated outside the U.S. and Canada. By contrast, 67% of Coca-Cola's Q1 revenue was generated internationally, as well as 31% of PepsiCo's revenue. There's certainly an international opportunity if Keurig Dr Pepper's management ever decides to pursue it.

Two hands hold up a contrasting green apple and a red apple

Image source: Getty Images.

The better buy

If I had to pick which stock had higher upside potential, I'd have to choose Beyond Meat. It's expanding with new partnerships, entering new markets, and researching new product opportunities. That said, Beyond Meat is still a young company that could derail. For example, many of its restaurant partnerships are brand new. If any of these partners decide to suddenly end the business relationship, Beyond Meat would feel the impact.

I have greater confidence Keurig Dr Pepper will outperform the market long term. Its business is well established, diversified, and has concrete plans for earnings growth. It's the better buy for having clear upside with less risk.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.