As the U.S. economy continues along the path of recovery from the pandemic, the most resilient companies are bouncing back and posting solid earnings reports.
Businesses such as lululemon athletica and Starbucks are seeing strong earnings results after big pandemic-related declines. But other companies are still struggling as businesses because of lingering pandemic issues, and it's unclear when, or if, they're going to get back on track.
Beyond Meat (BYND 3.84%) is actually in the second group, despite its stock price being up about 18% year to date. Is this investor confidence in 2021 justified? Should you consider Beyond Meat for your portfolio?
Why Beyond Meat stock is looking tasty
Beyond Meat has built itself into a leader in alternative meat products in every way. It has growing sales, many partnerships, and is a product innovator.
Before the pandemic, sales were growing by triple-digit percentages, including a 141% year-over-year increase in the 2020 first fiscal quarter, which included the beginning of the pandemic. Sales continued to increase throughout the pandemic, most recently with an 11% year-over-year increase in the 2021 first quarter, which ended April 3.
The company also kept up its expansion efforts over the past 12 months, with new products like meatballs and breakfast sausages. It launched an improved e-commerce venture and developed more strategic partnerships, such as a larger product line sold in Walmart stores and supplying McDonald's with plant-based patties. It made major strides into retail outlets in Europe, and it increased its distribution capabilities.
If there is a way for plant-based meat products to grow, Beyond Meat is there.
Why you should proceed with caution
But not everything is rosy for the company's outlook.
Its foodservice division was mostly responsible for decelerating sales growth, since the restaurant and catering industry took a large hit during the pandemic. Despite that, revenue continued to increase, largely attributable to retail channels. But even retail slowed down quite a bit, all while grocery sales as a whole were growing.
For example, in the 2020 first quarter (back when its sales grew 141%), Beyond Meat's U.S. retail sales increased 156% and its international retail sales increased nearly 5,000%! In the 2021 first quarter, U.S. retail sales only increased 28% year over year (while foodservice declined 26%), and international retail grew 189% year over year (while foodservice declined 44%). This was while the company continued to dish out new products and expand its retail presence. That's a bit concerning.
It's also putting a strain on profitability. While the company did begin to post profits in some 2020 quarters, it's back to reporting net losses while it invests in the business and struggles with sales growth.
Its products are also not compellingly different from those of competitors such as Impossible Foods or The Tattooed Chef, although it's positioning itself for the top spot through its product development and retail reach.
In the first-quarter earnings conference call, management acknowledged "softer demand" and retail distribution problems due to the pandemic. It's planning to address the second issue by expanding distribution capabilities and ramping up retail distribution. As for the first issue, Beyond Meat did grow market share in an underwhelming environment, and it's doing what it can to keep that going -- an improved product, more partnerships, and new products. The question is how fast the market is growing, which may impede Beyond Burger's ability to keep growth high no matter what it does.
Is investor confidence warranted?
Some investors think Beyond Meat is preparing for a comeback as the economy begins to reopen, which is pushing up the stock price. But it's not just a food service problem, so a strong economy won't necessarily fix it.
In a blow to Beyond Meat, JPMorgan Chase analyst Ken Goldman told reporters last week that Dunkin' Brands, which became a private company last year, discontinued its Beyond Sausage sandwich, and Dunkin' is probably Beyond Meat's biggest restaurant partner. He said it was likely due to decreased demand, and he noted that other restaurant deals haven't gotten off the ground, such as the McDonald's Canada pilot program and a partnership with Restaurant Brands international's Tim Hortons. His price target of around $100 a share for Beyond Meat stock is about 32% lower than what it trades for today.