Beyond Meat (BYND) has made a monster move since making its IPO debut on May 2. It priced at $25, opened at $46 and traded as high as $186 this past Monday, before pulling back.
What do they do? As you probably know, Beyond Meat specializes in offering plant-based meats. It has developed the ability to mimic the taste, texture, and aroma of animal-based meat products while at the same time offering the health benefits of plant-based meats. Products that Beyond Meat has pioneered include The Beyond Burger, its flagship product, and Beyond Sausage. The author of this comment recently tried a Beyond Meat burger, and it was quite good; it tasted very similar to a meat-based burger.
Why are investors so excited about it? BYND presents a pretty compelling argument about why its growth prospects are so attractive -- the idea is basically that BYND providing alternatives to meat products could disrupt the market in the same way that milk alternatives (particularly almond milk, coconut milk, and soy milk) have taken a big chunk of market share away from cow milk producers.
The success that milk alternatives have had is generating excitement about the potential for plant-based meats to do the same thing to the animal meat industry. In its S-1 filing, BYND noted that in the US, the size of the non-dairy milk category is equivalent to approximately 13% of the size of the dairy milk category. BYND believes it can grow its industry to be at least the same proportion of the $270 bln meat category in the US, which over time would represent a category size of $35 bln in the US alone. As a market leader, BYND feels it's well-positioned to capture and drive a significant amount of this category growth. It also believes that there is a significant international market opportunity.
BYND's marketing strategy is also pretty interesting and bold. Instead of marketing to vegans and vegetarians (who represent less than 5% of the US population), BYND requests that grocers place its products in the meat case. This has helped to drive greater brand awareness. BYND products are also starting to catch on in restaurants (A&W Canada, TGI Fridays, and, more recently, Tim Hortons).
The company is not yet profitable, nor is it EBITDA positive yet, and it sounds like achieving profitability may yet take a while, as BYND says it expects that operating expenses and cap-ex will increase substantially in the foreseeable future as it invests in growth. However, current consensus calls for 2020 being a profitable year on a full year basis. The top-line growth has been impressive, as 1Q19 revenue jumped 214% yr/yr to $40.2 mln. In 2018, revenue grew 170% to $87.9 mln.
Investors should be aware that the valuation is pretty crazy with a price/sales of 35x. However, we think the combination of the milk alternative analogy coupled with a tiny IPO offering size (9.625 mln shares) and high-quality underwriters (IPO led by Goldman, JP Morgan, Credit Suisse) has catapulted the stock in its first six weeks of trading.