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Meatless Future or Vegan Delusions? The Beyond Meat Inc (BYND) Valuation

In a big year for initial public offerings (IPOs), with Uber, Lyft, Pinterest and Zoom, to name just a few, already having gone public and more companies waiting in the wings, it is ironic that it is not a tech company, but a food company, Beyond Meat Inc (NASDAQ: BYND), that has managed to deliver the most dazzling post-IPO performance of any of the listings. As the stock increased seven-fold, investors who were able to get into the stock at the offering price have been enriched, but those who jumped on the bandwagon later have also reaped extraordinary returns. The speed and magnitude of the stock price rise has left many wondering whether investors have over reached and whether a correction is around the corner.

 

The Meatless Meat Company!
The Company: Let’s take a look at what Beyond Meat’s products are and the market opening it is exploiting, before diving into a story and valuation for the company. The company, headquartered in Southern California, and founded in 2009, makes makes plant-based (pea protein) products that mimic burgers and ground meat in taste, texture and aroma. In the prospectus that it filed leading up to its IPO, the company argues that its production process is revolutionary and new, and is responsible for its capacity to replicate animal-based meats.

 

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Copyright: gdolgikh / 123RF Stock Photo

 

The Competitors: While Beyond Meat is a leader right now in the specialized sub-category of meatless meats, it faces a formidable competitor in Impossible Foods, another young start-up producing its own plant-based versions of meat-like products. Since it is very likely, especially after Beyond Meat’s explosive market debut, that Impossible Foods will be going public soon, it is inevitable that there will be comparisons between the two companies. While I have done my own taste test, taste is in the mouth of the beholder, and this article perhaps has the most even-handed comparison of the two companies’ products.

 

Both companies have also adopted similar strategies of enlisting fast-food companies as product adopters, with Impossible Foods showing up on Burger King (Impossible Whopper) and White Castle menus, and Beyond Meat countering with TGI Friday’s, Carl’s Jr. and Red Robin. Other companies are taking note, including companies like Amy’s Kitchen, a long standing producer of organic and vegan offerings, and companies like Tyson Foods and Perdue that derive the bulk of their revenues from meat, but see opportunity in this new market.

 

The Drivers: Both Beyond Meat and Impossible Foods have been helped by a shift away from meat to meatless alternatives, and that trend has been driven by three factors:

 

  1. Health: While the research on the health consequences of eating meat continues, it has become part of conventional wisdom that meat-based diets (and red meat in particular) are associated with a greater risk of cardiovascular disease and cancer. This link provides a fairly balanced account of whether this belief is true, but for better or worse, it has led some meat eaters to cut back and sometimes top consuming meat.
  2. Environment: As climate change and environmental concerns rise to the top of concerns for some, they are feeling the pressure to shift away from meat, in general, and beef, in particular, because of its environmental footprint. I am not an environmental scold, but I don’t think that there is any debate that meat-based diets puts a greater pressure on the environment
  3. Taste: Until recently, shifting away from a meat-based diet also meant giving up the taste and texture of meat, since most meat substitutes did not come close. As companies like Beyond Meat and Impossible Foods are showing, plant-based alternatives are getting better at mimicking real meat, and for those who are attached to the texture and taste of meat, that is making a difference in their diet decisions.

 

None of these three factors are likely to fade away. In fact, I think that we can safely assume that they will only get stronger over time, accelerating the shift from meat to meatless alternatives.

 

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