It may be tempting to invest in what many consider "the next big thing." Revolutionary companies can change the world (while putting some money in your pocket along the way). But while some innovative companies do succeed wildly, others flounder, bringing shareholders along with them.
Investors who saw Beyond Meat (BYND -2.46%) as a revolution in food products and bought in at the beginning have gained a 138% return since the first-day closing price of $65.75 in May 2019. But the share price has a bit volatile over the subsequent almost two years, and some investors may have lost out. The price peaked at $235 a share in July 2019 and it hasn't reached that price again since. It's now trading at around $160 a share, and I'm not sure it's a worthy investment at this point in time.
Going to new places?
Beyond Meat's products, which are plant-based meat alternatives, aren't significantly different than vegetarian burgers and similar products, such as those from Kellogg's Morningstar Farms, that have been on the market for many years. Beyond Meat also faces competition from newer brands like Impossible Foods that are aiming to create more sustainable, meatless products that attract vegans and vegetarians as well as meat-eaters.
Beyond Meat's revenue was growing by triple-digit percentages before the pandemic, and the stock was regaining some momentum. In the second quarter (ended June 27, 2020), growth was still high at 69% over the prior year as the company rolled out family packs and customers were still in stock-up mode.
Third-quarter results (ended Sept. 26, 2020) weren't quite as good, with a 3% sales increase year over year, mostly due to poor foodservice segment sales because many restaurants and eateries were closed. Retail sales increased 39%, a considerable drop from previous quarters. Foodservice was down 41%. International was particularly mixed, with retail spots growing from 27,000 to 33,000 and foodservice sales declining 65%.
CEO Ethan Brown did note on the third-quarter conference call that Beyond Meat product sales increased 63% versus the overall plant-based meat category's increase of 41%, which means that Beyond Meat gained market share.
A sustainable business
The company is committed to innovation and regularly launches new products, including a new burger recipe scheduled for release soon. It recently announced a partnership to develop plant-based foods with PepsiCo, and it has started to sell its products in all CVS Heath stores. It already has relationships with big retailers like Walmart and Target.
Beyond Meat differentiates itself with its unique ingredients that simulate beef protein, including strong flavors and red juices. Plant-based meats and products are a growing category, but there are many entrants, and Beyond Meat patties are often compared to the Impossible Foods products.
The company reports fourth-quarter results this week, and investors should look out for how the retail sales trend is developing. With many eateries still closed, the foodservice business is unlikely to show a significant turnaround.
In terms of the overall category, Beyond Meat is a strong contender, and with its varied and changing product line, it's likely to increase sales in the future. But considering the buying atmosphere and the competition, I don't know if sales will be strong enough to make Beyond Meat a strong contender for a stock pick.
Beyond Meat's stock price is up almost 18% in 2021, which means many investors are confident in the company's prospects at least for the short term. But there are many uncertainties right now, and purchasing shares could torpedo your portfolio. I would hold off on buying Beyond Meat stock for now.