Tue, Sep 03, 2019

Beyond Meat Will Crash When Investors Realize What It's Really Selling

Beyond Meat (BYND) is now probably the hottest stock in the world.

Its innovative “plant-based meat” is found in the frozen food section of thousands of grocery stores. Carl’s Jr., Del Taco, and a few other restaurant chains sell its products, too.

Supposedly, it tastes just like real meat but is better for animals and for the environment. Many investors expect plant-based meat to be the “next big thing.”

Some will call this an unfair comparison. They’ll argue Beyond Meat is more innovative than National Beverage. They’ll say it has a “first-mover advantage.”

It’s true that Beyond Meat introduced plant-based meat to the masses. But let’s not forget that plant-based meat is a basic consumer good. It’s a commodity that can be easily replicated.

Commodities that can be easily replicated compete on price. That’s a big problem for Beyond Meat because its products are expensive...

Its hamburger cost anywhere from double to triple what real hamburger costs.

Beyond Sausage, another one of its products, sells for around $10.30 per pound. That’s 70% more than what pork sausage sells for.

It can’t charge such sky-high prices for much longer. In fact, competition is already heating up.

Impossible Burger also sells plant-based burgers. You can buy its products at more than 9,000 restaurants, including Qdoba and Burger King.

Tyson (TSN)—the largest US meat producer—is also developing its own line of alternative meat products. It was an initial investor in Beyond, but sold its stake in April.

Nestle—the world’s largest food company—has entered the plant-based market, too. It’s selling its “Incredible Burger” in Europe already. The company plans to introduce this product to America by fall.

Finally, JBS—the world’s largest meat producer—is also looking to launch a plant-based meat product in Brazil this year.

Soon, Every Major Food Company Will Have Its Own Plant-Based Burger

These companies have deeper pockets and better distribution than Beyond Meat.

They can develop new products and bring them to market much faster than Beyond Meat.

Perhaps most importantly, they charge less than Beyond Meat.

This will force Beyond Meat to either cut prices or surrender market share. Both would be bad for investors.

Beyond Meat’s Stock Is Absurdly Expensive

It trades at a price-to-sales (P/S) ratio of 87. Investors are paying $87 for every $1 that Beyond Meat generates in sales.

Let me put that in perspective…

Tyson trades at a P/S of 0.73. Conagra Brands (CAG) trades at 1.5X times sales. And General Mills (GIS) trades at 0.4X sales.

Should Beyond Meat trade at a premium because it’s a disruptor stock changing the way we eat? Okay. Let’s compare it to another disruptive company: The Match Group (MTCH).

The Match Group is disrupting how people find love. It dominates online dating, it’s growing like crazy, and its stock has delivered 416% gains since it went public in November 2015. That’s 10 times the S&P 500’s return over the same period.

Match.com trades at 12 times sales. Its stock is 1/7 as expensive as Beyond Meat’s!

Like National Beverage, Beyond Meat Won’t Live Up to This Absurd Valuation

That doesn’t mean Beyond Meat will disappear. But the hysteria will fade away.

When that happens, its stock should come crashing down. I wouldn’t be surprised if BYND falls another 30% or more once investors realize powerful competitors are coming for its market.

If you own Beyond Meat stock, you’re probably sitting on big profits. Nice call. But consider selling your shares to lock in those profits as soon as you finish reading this.

The clock is ticking. Once investors wake up to the tough competition Beyond Meat faces, its stock could drop fast.

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