Beyond Meat (NASDAQ:BYND) is a leader in the fast-growing plant-based meat category. This space is worth $939 million with revenue increasing 18% in 2019, according to data from the Plant Based Foods Association.

Although many consumers are gravitating toward plant-based foods, Beyond Meat faces serious risks to its revenue growth, which will be problematic given the company's expensive valuation. Here's why Beyond Meat may not be a good investment right now.

Beyond Meat's burgers

Image source: Beyond Meat.

Increasing competition in the space

While the plant-based meat space is growing at a rapid clip, the industry is attracting well-funded, established entrants, creating more competition for Beyond Meat. Growth for plant-based meat sales far outpaced the 2% growth of animal meat sales last year, and large companies like Hormel, Tyson, Nestle, and Kroger are launching their own meat alternatives in the form of burgers and sausages.  

Kellogg is also developing its own offerings under the Incogmeato brand, and the company recently launched a well-publicized marketing campaign. On National Burger Day (Aug. 27), Kellogg partnered with Postmates to deliver free sliders made with Incogmeato to Denver and Dallas residents.

These competitors have large marketing budgets and well-established distribution channels to get their products out to consumers. The new entrants could take market share from Beyond Meat or pressure it to lower prices.

Earlier this year, competitor Impossible Foods announced an expanded product line of meatless patties along with price cuts on its products. In March, the maker of plant-based meat and dairy products said it would cut its wholesale prices by 15%. As more food producers enter the increasingly crowded market, other companies may lower prices in a bid to gain share.

Foodservice challenges and higher price points could hinder revenue growth

In the fiscal second quarter (ended June 27), Beyond Meat's foodservice segment revenue decreased 61% year over year as its clients were shut down or operating at lower capacities due to COVID-19. There continues to be risk to this portion of the consumer discretionary company's business, even as many restaurants reopen.

The food company noted in its second-quarter earnings report, "While many of the Company's foodservice customers have reopened, most are operating under various local restrictions and continue to navigate a highly uncertain environment." And as a result, management has yet to reestablish its full-year 2020 outlook.

Beyond the foodservice segment, which made up over half of the top line in 2019, many consumers are grappling with a severe recession, potentially making them less willing to spend on premium plant-based products. If the economy slows further and consumers continue to tighten their purse strings, even Beyond Meat's retail segment could suffer.

Valuation is extremely high

Beyond Meat has a current price-to-sales multiple of 21, well above the valuations of major competitors vying for share in the plant-based meat market. 

Company Price-to-Sales Valuation (TTM)
Beyond Meat 21.0x
Hormel Foods 2.8x
Kellogg 1.7x
Tyson Foods 0.5x

Table by author. Data source: Yahoo! Finance.

And while investors have to digest that hefty premium, revenue in the fiscal second quarter grew 69% year over year to $113.3 million -- impressive but a significant decline from the 141% growth reported in the first quarter. As the company increases its scale and faces new competition, it may struggle to sustain the expansion that investors currently expect from the growth stock.

Given the uncertainty faced by both consumers and restaurants in the remainder of 2020, investors should hold back on buying Beyond Meat stock.