The potential for plant-based meat company Beyond Meat (NASDAQ:BYND) is so great that I was persuaded to become a shareholder. And yet, I concede fast-food giant Wendy's (NASDAQ:WEN) may actually be the better stock to buy today, considering the current balance between risk and reward.

Beyond Meat provides sky-high potential, but its current valuation presents an execution risk: It must fully seize its opportunity for shareholders to justify the price premium. Wendy's, by contrast, presents a reasonable valuation considering its own growth initiatives and (surprising) history of market-beating returns.

A person draws a scale weighing risk and reward on a chalkboard.

Image source: Getty Images.

Beyond Meat's risk

Beyond Meat isn't profitable by measurements using generally accepted accounting principles (GAAP), so the price-to-sales ratio is one of the few metrics investors can use to assess the valuation. The stock currently trades at 22 times trailing sales, versus less than one times sales for competitors like Tyson Foods and Sanderson Farms. Granted, Beyond Meat is growing sales at a blistering pace. But the stock is pricey from a trailing price-to-sales perspective relative to its most-comparable peers.

In 2019, Beyond Meat grew revenue 239% year over year to $298 million. Triple-digit growth is hard to replicate, but don't think this growth-stock story is over. So far in 2020, the company has earned new food-service partners like Starbucks, expanded internationally into major economies like China and Brazil, released new retail products like Beyond Meatballs, and is experimenting with new product categories like chicken alternatives. There's a lot here to fuel continued growth.

Beyond Meat's new retail product, Beyond Meatballs, displayed in its retail packaging and prepared in menu items.

Beyond Meatballs. Image source: Beyond Meat.

I believe in Beyond Meat long term, which is why I own shares. That said, the stock has doubled in the months since I became a shareholder, something I hoped would happen over three to five years. At its current valuation, it'll need several more years of growth similar to 2019 and 2020 to justify the price. I like the chances, but admit the risk-reward balance may be more in favor of Wendy's at the moment. Here's why.

The relative value of Wendy's stock

Wendy's is the third-largest hamburger chain in the world, behind McDonald's and Restaurant Brand International's Burger King. This gives me great confidence it'll still be around in 10 years, and yet being in third place makes it an afterthought among investors. Furthermore, the company's revenue is down over the last 10 years, which doesn't catch growth investors' eyes. And its dividend currently yields less than 1%, so the stock doesn't show up on dividend investors' screens. 

Having said all that, surprisingly Wendy's overlooked stock has beaten the market average over the last 10-, five-, and three-year time frames.

WEN Chart

WEN data by YCharts. Five-year returns displayed.

Wendy's sold its stake in Arby's in 2011 and The New Bakery Company in 2015, partly explaining its revenue decline over the past decade. The divestitures are done now, so the company has grown revenue since 2018. And it has two big growth levers it's just starting to pull.

The first is breakfast. The breakfast menu was launched in March and already accounted for 8% of total U.S. sales in the second quarter. This is impressive considering people were working from home, making a fast-food breakfast less compelling than usual. As things normalize, Wendy's has a shot at increased breakfast success, driving sales growth and operating leverage at a restaurant level. 

The other growth lever for Wendy's is international expansion. In 2019, the company had just 950 international locations and $1 billion in international sales, accounting for about 10% of total sales. By 2024, it's targeting more than 1,500 international locations and over $2 billion in international sales. Currently, it is not in Europe but is planning restaurant openings in the U.K. in the first half of 2021.

Wendy's is primarily franchised, which is great for cash flow; there are fewer expenses than with a company-owned operating model. Therefore, it should be able to grow earnings at a strong clip as it grows revenue through breakfast and international expansion. And rising profits open up the good possibility of dividend growth.

A row of sequentially taller stacked coins are each topped with growing plants.

Image source: Getty Images.

So which is the better buy?

As previously mentioned, Wendy's dividend yield is less than 1%, but the yield is temporarily suppressed. The company lowered its dividend payout because of the coronavirus, but it could soon return to pre-COVID-19 levels. That payout would yield over 2%, slightly above average.

Moreover, Wendy's has an impressive history of dividend growth; the dividend doubled from August 2016 to December 2019. Not only can the company restore its dividend, its revenue growth can provide an opportunity to grow the dividend even further.

None of this is to say Beyond Meat is a bad stock to buy. But you'd be hard-pressed to find many high-yield dividend stocks with a high probability of outsize dividend growth like Wendy's.