Beyond Meat has carved out a growing niche in plant-based meat products, while Coca-Cola has struggled with declining soda consumption rates. Beyond Meat has attracted growth-oriented investors since its IPO last May, while Coca-Cola has remained a stable slow-growth play for dividend investors.
Beyond Meat's stock swooned with the rest of the market during the COVID-19 crash in March, but it recovered and has generated a year-to-date gain of nearly 70%. During the same period, Coca-Cola's stock dipped nearly 10% as the pandemic shut down restaurants and retailers.
Based on those facts, Beyond Meat seems like a much stronger investment than Coca-Cola. But past performance never guarantees future gains, so we should take a fresh look at both stocks to see which is the better overall investment.
How fast is Beyond Meat growing?
Beyond Meat's revenue grew 170% in 2018, 239% in 2019, and another 96% to $210.4 million in the first half of 2020.
Its meteoric growth was buoyed by partnerships with top restaurants and retailers -- including Yum Brands, Starbucks, Costco, and Walmart -- which quickly boosted its exposure among mainstream consumers.
Beyond Meat isn't profitable yet, but its net losses narrowed in 2018 and 2019. Its net loss also narrowed year-over-year from $16.1 million to $8.4 million in the first half of 2020. Beyond Meat hasn't offered any guidance for the full year, but Wall Street expects its revenue to rise 61%, and for the company to post its first full-year profit. For fiscal 2021, analysts expect its revenue to grow 56%, with a near-fivefold jump in earnings.
Those growth rates are astounding, but the stock already trades at over 230 times forward earnings and 10 times next year's sales -- so there's already a lot of optimism baked into its price.
How fast is Coca-Cola growing?
Coca-Cola's organic sales, which exclude investments, divestments, and other one-time charges, rose 5% in 2018 and 6% in 2019.
But in the first half of 2020, its organic sales tumbled 14% year-over-year as closures of restaurants and other businesses offset sales of its drinks for home consumption. That abrupt decline, which mainly occurred in the second quarter, throttled Coca-Cola's growth plans for the year -- which included its expansion of Costa Coffee and the introduction of new drinks.
Coca-Cola's comparable EPS, which tracks its organic sales, grew 9% in 2018 and 1% in 2019, but fell 16% in the first half of 2020. Coca-Cola didn't provide any full-year guidance last quarter, but analysts expect its revenue and earnings to drop 12% and 14%, respectively, before stabilizing next year.
Coca-Cola's near-term growth seems wobbly, but the stock is reasonably valued at 24 times forward earnings, and it pays a dependable forward yield of 3.2%. It's also a Dividend King that has raised its dividend annually for 58 straight years.
Volatile vs. predictable returns
Beyond Meat's growth story is compelling, but it faces three main challenges.
First, its rival Impossible Foods is also striking major deals with restaurants and retailers. That competition could curb Beyond's pricing power and dampen its hopes for generating stable profits. Second, the plant-based meat craze might just be a fad, and customers could lose interest after the novelty wears off. Lastly, the stock is priced for perfection -- so any sign of a slowdown could spark a stunning sell-off.
Coca-Cola isn't generating exciting growth, but it's a well-run company that has wisely diversified its business away from carbonated drinks and in recent years added bottled water, teas, juices, sports drinks, energy drinks, and other beverages. It's also launched lower-sugar and lower-calorie variants of its flagship sodas to attract more health-conscious customers.
It's doubtful anyone considers Coca-Cola's drinks to be passing fads, and its organic sales will likely rebound after the pandemic passes. Until that happens, Coca-Cola's healthy dividend yield should set a firm floor under the stock.
The winner: Coca-Cola
I like both stocks, but Beyond Meat is too risky and rich for my tastes. It might still outperform Coca-Cola in the near term, but I'd rather be holding the latter if the market crashes -- Coca-Cola has rebounded strongly from steep market downturns before. As for Beyond Meat, I need to see more evidence that the plant-based meat market can generate sustainable returns over the long term.