Beyond Meat (BYND -4.70%) is a consumer goods company that trades at valuation multiples worthy of some high-flying tech stocks. Below, Fool.com contributor Brian Feroldi asks fellow contributor Asit Sharma to weigh in on the company's rich premium to the overall market. Sharma discusses an important metric that helps put the plant-based meat manufacturer's rich stock price in context.
A full transcript follows the video.
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Feroldi: The price to sales ratio, you can't do an apples-to-apples comparison between this and Alteryx (AYX -3.79%), for example. 19X sales, way more on a gross profit basis, but again, growing very, very quickly, trading about 10X forward sales. Not cheap, but I'm not going to argue this thing is insanely priced. But Asit, your thoughts on valuation?
Sharma: Yes, just a really brief one, and then we'll get to questions here. I've been talking about this relationship between gross profit margin and price to sales. When these two trends are in opposite directions, that's saying something good. It's usually indicating that a company is gaining some scale in the marketplace. That price to sales ratio was actually even worse than it is now at 20X, but you can see that that ramp in sales growth is actually forcing that price to sales ratio down. Meanwhile, margins are climbing now. That's still not a great gross profit margin.
This company needs to get its gross profit margins above 50%. They've got to land a punch on Brian's checklist, but they're headed in the right direction, and I believe that, with increased distribution, again, this is a one to two, three-year project with increased distribution in Asia, where I think they've got some really interesting potential, they can get there. The market, Impossible Foods actually is good for Beyond Meat, if you get this concept, and Beyond Meat is good for Impossible Foods. I know that we're all doing taste tests at home, but they are both pushing this market.
Every person who tries it. You know what, I have had Impossible Foods stuff only a couple of times, but every time I talk about Beyond, we have so many viewers saying, "Hey, Impossible tastes better." Guess what I'm going to do, I'm going to buy some Impossible products this weekend. You're going to try the other if you try one. When you have two upstarts in an industry, actually, it's good for both of them as long as one just doesn't swamp the other. But yes, just the other one I wanted to make is this, relationship looks good to me, it's moving in the right direction.