Beyond Meat (BYND 6.69%) is a cautionary tale for investors. The stock hit a peak price just after going public and, after some volatile ups and downs, the shares are now off roughly 95% from their highs. Meanwhile, larger peers have held up much better over the same time frame while also paying dividends. Here's why the big, consumer staples stocks are a better choice for most investors.
Exciting, but...
Beyond Meat held its initial public offering (IPO) in May 2020. The new stock rocketed higher because of excitement surrounding the alternative meat space and, specifically, the Beyond Meat brand. Unfortunately, Wall Street has a bad habit of becoming enamored with a story for a little while and then moving on, particularly if the company has trouble turning potential into profits. That is exactly the problem with Beyond Meat.
NASDAQ: BYND
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Beyond Meat's financial losses, meanwhile, have been getting worse as it attempts to grow, which is not uncommon for an upstart company. However, it is also facing increasing competition from both companies small and large, including industry giant Kellogg (K +0.00%), which has long operated the Morning Star Farms brand. Hormel (HRL 1.49%), meanwhile, has been working on an alternative meat product called Happy Little Plants. And these are just two examples.
The key takeaway here is that for large food makers like Kellogg and Hormel, alternative meat is one brand among many, while at Beyond Meat it is the entire business. That's a big deal.
NYSE: HRL
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Size matters
When it comes to the consumer staples space, a business's scale makes a big difference. Companies like Kellogg, Hormel, Unilever (UL 0.56%), and General Mills (GIS 2.88%) have the financial capacity to invest in new brands without putting undue strain on their finances. They have the marketing prowess to support new products as they launch. They have the business relationships to get new items onto always-competitive store shelves. And they have the distribution capacity to quickly ramp up smaller brands.
NYSE: GIS
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A great example of this is General Mills' purchase of the Blue Buffalo pet food brand. While Blue Buffalo had been doing quite well on its own, General Mills was able to materially increase distribution and marketing -- growing the brand from $1.2 billion in sales in fiscal 2018 to $2.3 billion in 2022.
Blue Buffalo had a rough fiscal second quarter of 2023, but that was partly because it couldn't keep up with demand. General Mills is building out new capacity, which management expects will get growth back on track. Since Beyond Meat's IPO, General Mills' stock is up over 60%. For reference, Hormel's shares are up around 15% over that same span, while Kellogg's shares are higher by 25% or so.
But perhaps you prefer to buy out-of-favor companies. Since Beyond Meat's IPO, Unilever, one of the largest consumer staples makers on the planet, has seen its stock decline 15%. Unilever's dividend yield is an attractive 3.5% or so, which is toward the high end of its historical yield range. This suggests that the company's shares are attractively valued. It has been having troubles with growth of late, but management has been working to streamline the business so it can focus on its top brands.
NYSE: UL
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However, Unilever has also been making smaller, bolt-on deals, including buying upstart brands like Nutrafol, Paula's Choice, and Onnit. The goal is take the brands and expand them using Unilever's business strengths, including its strong financials, distribution prowess, and marketing acumen. This is a normal thing in the consumer staples space, with big brands buying up interesting smaller ones. And it is why most investors will be better off with the industry giants than upstarts, where future success basically rests on a single product.
Exciting but not worth the ride
Owning a company that's just gone public and is seemingly breaking new ground in some way is exciting. But in the consumer staples space, building a new brand is an uphill climb. Most investors should stick to the reliable giants, which have the ability to take small brands and grow them.
In the end, Beyond Meat should probably be just one brand in the hands of a larger company with a much broader portfolio (and perhaps it will be someday). Unilever would be an interesting alternative for value investors, while Hormel, which also has a historically high yield (roughly 2.4%), is a more growth-oriented company worth considering.
