Shares of plant-based protein company Beyond Meat (BYND -7.93%) took a hit recently after a Wall Street analyst reportedly warned that investors may be too optimistic about the company's prospects. According to The Fly, Piper Sandler analyst Michael Lavery downgraded the stock, in part, because the company might have to resort to lowering prices to gain market share. And that could negatively impact its profit margins.
In this video clip from Motley Fool Backstage Pass, recorded on Sept. 16, Motley Fool contributor Jon Quast talks with fellow contributors Jose Najarro and Jason Hall about how the company can still grow revenues and profits long term, despite the aforementioned concerns from Wall Street.
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Jon Quast: What I will say is, long term, this company does have some catalysts for growth. In full disclosure, I am a Beyond Meat shareholder. I'm a small shareholder, but here's a couple of things that they can do to grow from here.
This is a recent innovation. They are almost a 100% beef alternatives right now. They just re-launched their chicken products here in the last couple of months. They partnered with Panda Express to get the Beyond Chicken back on the market. I really think that this is going to be a good growth driver for them. Basically, think about it as a new vertical for the company. They have a beef platform. Now they're moving into chicken and people consume more chicken than they do beef. This is potentially a very big thing.
They're also expanding internationally. In China they launched minced pork meat, and that might not sound all that appealing to you or I, but I did want to point out, China is the most popular nation in the world.
Jason Hall: Pork dumplings are the most amazing thing on the Earth.
Quast: Yeah? You like that.
Check out this. This is from, I forgot what the government agency is that does this. But shows that on average, 31 kilograms of pork consumed per capita in China. Now you talk about, the world's most populous nation, that's almost 70 pounds. If I remember my kilograms to pounds correctly, almost 70 pounds. China consumes more pork than any other country on Earth. And Beyond Meat is the first-to-market with a alternative pork product.
Then finally to Mr. Lavery's comment about gross margins, Beyond Meat has been lowering their prices over time and they are doing that intentionally so that they can compete with animal protein, get it down to price parity. But they're not doing it at the sacrifice of margins. They are really committed to keeping the gross margins above 30%. Tyson by comparison, down around 13%. If you wonder why this company gets a premium over traditional meat, that's why.
Jose Najarro: That's actually pretty interesting, Jon. I saw that they were entering into the more economical stores and I'm impressed to see that their margins has maintained the levels they originally had. I think earlier this year, it was that certain food chains, let go of certain menus with Beyond Meat product.
But to me, a business needs to understand, and I think they explain that there were certain regions which are still not grabbing the alternative meat market. It makes no sense for those chains to keep it within those markets. Your spending money there. But these chains that got rid of it, they only got rid of them in the markets where they're not using it, but still, for example, on the West Coast and the East Coast, a lot of the city places you still remain with that Beyond Meat product on the menu.
Hall: I think the thing for me that I almost put this in the too hard pile. I do think that their pricing power is going to continue to erode. I really do because at some point the premiumization is just going to go away as it becomes less of a novelty and as there become more entrants into it.
I think the flip side of that though, is, can the company continue to innovate and develop a cost advantage? Not what it's selling it for, but what it's making it for. If it can get a large enough market share and enough products and innovate and be ahead and create some brand value, which it has some brand name value. But if it can continue to cement that and also have a cost advantage at scale then it can be a good investment.
But I don't know if that's going to happen. To me it's a little bit too much in the too hard pile. I like these products. I think they are great products. I'm a big fan of the Impossible brand products. Personally, we eat them every week in my home. The quality of these products is so far beyond where it was even five years ago. I just don't know if at scale, if they're going to be able to compete with Big Food. I don't know if that's going to be the case and that's why I haven't invested in this space so far. It's in the too hard pile for me.