After a disappointing third-quarter earnings report from Beyond Meat (NASDAQ:BYND), investors are questioning whether the growth story is already over. Shares of the plant-based meat alternative manufacturer have fallen 36% from their October highs.
While the stock soared 65% in 2020 and has risen nearly fivefold from its initial public offering price, undoubtedly creating quite a few millionaires who bet on the business early on, growth seems to have faltered significantly in a time when it should be expanding, so let's see whether Beyond Meat still has what it takes to be a millionaire-maker stock in the future.
The elephant in the room
So why did Beyond Meat stumble? President and CEO Ethan Brown says consumers were still "freezer loading," or bulk-buying products to ensure they had plenty of food available, but they simply weren't doing it at the same rate as they had earlier on in the pandemic.
Sales tailed off dramatically in the latest period, rising only 2.7%, compared with 69% in the second and a 141% surge in the first. Coupled with a food service business that has been damaged by COVID-19-related shutdowns and reduced capacity limitations, Beyond Meat suffered a setback.
Yet another meat shortage like the one that hit early on in the coronavirus outbreak may be on the horizon, which could lead to a new round of panic buying. JBS, for example, the world's largest meat supplier, has sent home about 8% of its U.S. workforce over rising COVID-19 cases. Beyond Meat could see consumers turn to its products once more.
The need for new and better products
Yet Beyond Meat can't grow if all it's doing is lurching from one crisis to another; that's not a viable long-term strategy. It needs to continuously attract new customers to its products, who then become repeat customers.
To do so, it needs to continually innovate and look at all areas of protein substitution, including pork and chicken, which is allowing the plant-based meat alternative maker to enter new partnerships beyond just burger chains and the beef section of the supermarket.
Moreover, it plans to bring more production in-house to both lower its costs as well as allow it to expand distribution. It just completed the acquisition of a former co-manufacturing facility in Pennsylvania while also expanding capacity in Europe and China, all of which should help lower the cost of its products to be more competitive with "real" meat.
International expansion opportunities
International markets give Beyond Meat new avenues for growth as well. For example, it recently developed a new pork product specifically for the China market -- a plant-based minced pork.
As China is the world's largest consumer of pork, this represents a rich opportunity, though whether a plant-based alternative can shake cultural norms surrounding pork consumption remains to be seen. Rival Impossible Foods is also tackling the Chinese market.
This past summer, it also entered the Brazilian market of Sao Paulo with burgers, sausages, and ground beef substitutes. Brazil is the third largest meat-consuming country in the world, but Beyond Meat will have to face JBS and Mafrig, which also have plant-based alternatives.
That may be part of the problem. For as much as analysts forecast meat substitutes are becoming a multibillion-dollar opportunity in the years ahead, the expanding market has attracted numerous competitors, including international giants such as Nestle and home-grown rivals such as Tyson Foods. The list of consumer goods companies developing their own plant-based products is actually quite large and growing.
A rich future?
Analysts are famous for extrapolating out in an ever rising straight line the growth prospects of a fad or trend. All too often those forecasts turn out to be wildly exaggerated. Yet even if they're right about plant-based meat alternatives, the field is crowded.
Beyond Meat as an early mover in the space still has a lot of growth left in it, and it has arguably tapped into consumer demand for plant-based meat alternatives better than the competition. Yet there also seems to be a finite market for its product -- and only a certain subset of consumers are likely to be regular repeat customers.
Its stock is also quite pricey, it needs to show that it can have sustained growth outside of a global pandemic, and can rise above the competition. So while Beyond Meat has a long future in front of it, its ability to be a millionaire-maker stock looks constrained.