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Competition Will Eat This Firm Alive

New Constructs

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New Constructs
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Investment Analyst

Since its high-flying IPO at $46, this stock has soared to $135. With such strong momentum and triple-digit year-over-year revenue growth, traders may push this stock higher. However, the fundamentals reveal this stock is more style than substance. Fiduciaries should avoid Beyond Meat Inc. (BYND: $135/share).  

While Beyond Meat’s stock performance is attractive to many momentum traders, investors with fiduciary responsibilities should consider the deteriorating fundamentals, weak prospects to compete at the scale of its competition, and the unrealistic increase in profits implied by the current valuation.

This report helps investors of all types see just how extreme the risk in BYND is based on:

  • Slowing revenue growth
  • More competition
  • The lack of competitive advantages that nearly all competitors possess
  • Doing the math: stock price implies huge increase in revenue/profits

Growth Will Slow Down, but Competitors Won’t

Beyond Meat’s massive revenue growth cannot last forever. The larger the firm gets, the more difficult it becomes to achieve large year-over-year (YoY) growth rates. Case in point, revenue grew 239% YoY in 2019, 141% YoY in 1Q20, and 69% YoY in 2Q20. Consensus estimates expect revenue will grow 61% YoY in 2020, and just 17% YoY by 2025, per Figure 1.

Going forward, Beyond Meat will find it even more difficult to grow revenue and profits as competitors flood the market.

Figure 1: Consensus Revenue Growth Estimates: 2020-2025

Consensus Revenue Growth Estimates: 2020-2025

Sources: New Constructs, LLC and company filings.
2020-2025 revenue growth rates based on consensus estimates

Competition is Plentiful and Has Competitive Advantages

Attracted by Beyond Meat’s impressive growth rates and soaring market value, multiple competitors are entering the alternative meat industry. Tyson Foods (TSN), the largest meat producer in the U.S., sold its stake in Beyond Meat in April 2019 and just a few months later announced the launch of its plant-based protein brand, Raised & Rooted. Some of the largest consumer food brands have followed suit.

Below is a short list of some of Beyond Meat’s alternative meat competitors:

  1. Incogmeato by Morningstar Farms, owned by Kellogg Co. (K)
  2. Simply Plant-Based Meatless Burger, a SYSCO Corp. (SYY) exclusive product
  3. Simple Truth plant-based meat, owned by The Kroger Co. (KR)
  4. Sweet Earth Brand, owned by Nestle (NSRGY)
  5. Gardein, owned by ConAgra Foods (CAG)
  6. Happy Little Plants, owned by Hormel (HRL)
  7. Boca Foods, owned by Kraft Heinz (KHC)
  8. Impossible Foods, privately owned
  9. Lightlife Foods, owned by Maple Leaf Foods

This list is not exhaustive and doesn’t include any of the traditional meat products that continue to garner a large share of consumer dollars.

Click Here to Read the Full Article

This article originally published on September 2, 2020.

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[1] Our core earnings are a superior measure of profits, as demonstrated in Core Earnings: New Data & Evidence a paper by professors at Harvard Business School (HBS) & MIT Sloan. The paper empirically shows that our data is superior to “Operating Income After Depreciation” and “Income Before Special Items” from Compustat, owned by S&P Global (SPGI).

Click here to download a PDF of this report.

Disclosure: New Constructs

Disclosure: David Trainer, Kyle Guske II, Sam McBride, Andrew Gallagher, and Matt Shuler receive no compensation to write about any specific stock, style, or theme.

About New Constructs

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In-depth risk/reward analysis underpins our stock rating. Our stock rating methodology grades every stock according to what we believe are the 5 most important criteria for assessing the quality of a stock. Each grade reflects the balance of potential risk and reward of buying that stock. Our analysis results in the 5 ratings described below. Very Attractive and Attractive correspond to a “Buy” rating, Very Unattractive and Unattractive correspond to a “Sell” rating, while Neutral corresponds to a “Hold” rating.

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