Investors looking for a thematic bet can consider accumulating the Beyond Meat (BYND) stock on dips. California-based BYND (founded in 2009 by Ethan Brown) is one of the fastest growing food companies in the United States, offering a portfolio of revolutionary plant-based meats. It is a foodtech company that enables consumers to experience taste, texture and other sensory attributes of popular animal-based products while enjoying the nutritional benefits of eating plant-based products.
As we move forward from an earlier decade where themes such as social media, e-commerce, software as a service and electric cars gave investors outsized returns, it would be worthwhile to ponder now on the themes that are likely to play out strongly this decade. Foodtech is one such that investors can bet on, besides a few other themes such as artificial intelligence, big data & analytics and healthtech for this decade. Alternative proteins/plant-based meats are in early stages of disrupting the global $1.5-trillionyear (and growing in mid-single digits) meat industry. BYND is one of the pioneers and largest pure-play company in this space. Its closest peer in the US market is Impossible Foods Inc which is unlisted.
Thematic tides lifting the company’s boat (prospects) are increasing public and governments’ focus on addressing climate change and natural resource constraints, investor interest in climate change and ESG investing, and greater awareness among consumers (especially millennials) on animal welfare, sustainable and healthier food options. According to BYND, making its plant based ‘beef’ burger, for instance, generates 90 per cent less greenhouse gases compared with a standard beef burger. Its burgers also require 99 per cent/93 per cent/46 per cent less water/land/energy vs a standard ¼ beef burger.
In its outlook for 2021, one of the world’s largest money managers , Blackrock, has outlined that sustainability would be its new standard of investing and within that climate change will be the most significant factor addressed. Last month, Unilever announced a global $1billion sales target within the next 5-7 years from its plant-based meat and dairy alternatives business. Recenty students at Oxford University voted to ban beef and lamb from the university to reach its climate change goals. All these are indicaive of the thematic tides gaining momentum.
BYND’s 3-year revenue CAGR (till calendar year 2020 (estimated)) is at 130 per cent. It is likely to end CY20 with revenue of around $410 million, with growth for CY 20 (over CY19) at around 40 per cent. Its products are sold through partnerships with retailers and restaurant chains under its ‘Beyond’ brand. Around 30 per cent of its revenue is through foodservice chains which have been severely impacted by Covid-19 in 2020. Given this backdrop, its revenue growth for CY 20 is impressive.
There were concerns on company’s business momentum after its recent Q3 (three months ended September 2020) sales growth over September 2019 quarter came in well below expectations. This was driven by retailers pulling back on their ordering patterns in response to weaker consumer demand following their stockpiling/panic buying in the June 2020 quarter.
Its forward 3-year revenue CAGR (till CY 2023) stands at around 50 per cent as per consensus estimates (Bloomberg). It has been EBITDA positive since CY 2019. Currently, 80 per cent of company’s revenue is from the US and the company is seeing good momentum in international markets, as it expands.
The company’s market cap is $8.6 billion and enterprise value (EV) is $8.4 billion. It trades at an EV/CY21 sales (consensus) multiple of 13 times. While this appears expensive, one needs to view this in the context of its expected revenue growth of 50 per cent until CY23 as well as the fact that the current penetration of plant-based meats it at less than 1 per cent of the global meat industry.
According to unconfirmed reports, Impossible Foods was valued at $4 billion in a fund raising in August, giving it a trailing EV/ sales multiple of 34 times vs trailing multiple of 20 times for BYND. Given the thematic tides in its favour, this sector may continue to trade at elevated multiples.
Indian food company Jubilant Foodworks trades at 8x EV/FY 22 (March) estimated sales with 3 years revenue CAGR (till FY23) at just 10 per cent (consensus estimates as per Bloomberg) and no strong themes in its favour as compared to BYND. While their businesses are different, as BYND is a supplier of packaged food and Jubilant has front- end retail business; but when looking at valuation alongside growth prospects, BYND is not expensive on a relative basis. BYND is also a net cash company with low cash burn and will not require to raise debt or equity to fund its growth going forward, as per current expectations.
While the CEO of Impossible Foods has an ambitious target of completely animal meat free world by 2035 (he wants to remove animals entirely from the food system of humans by 2035, the market for which is at $1.5 trillion today), even if 20 to 30 per cent of this opportunity is achieved by then, BYND can be a big winner.
Another factor that can support high valuation for BYND is that it will be an attractive acquisition target for larger companies that will come under pressure in this decade to improve their ESG score in an investing world, where sustainability is becoming the new standard of investing.
BYND could face risks from more competition, sensory attributes of its products falling short of expectations and political lobbying in favour of the current meat industry. The ride for investors will be volatile as growth stocks can have wild swings on quarterly results, but those with an appetite for risk and a long-term perspective, can accumulate the stock on dips