Beyond Meat Inc (NASDAQ 🙂 investors who bought shares in last week’s IPO (IPO) have every reason to be satisfied with themselves. The stock has risen almost 200% since the vegetable burger maker made $ 240 million in the highly successful IPO on May 2.
The demand for his shares was so strong that the NASDAQ debut last Friday was the best among IPOs who raised $ 200 million or more since before the 2008 financial crisis, according to data from Bloomberg.
The original public offering from Beyond Meat was priced at $ 25 per share, the top of the range of $ 23- $ 25, leaving the company valued at just under $ 1.5 billion. With an opening price of $ 68.84 on Monday, the company’s market capitalization had risen to $ 3.97 billion after just three trading days. The shares closed 12% yesterday, at $ 74.79.
Clever Marketing Push
What is unique about El Segundo, Californian maker of plant-based hamburgers and sausages that attracted investors such as Bill Gates and Leonardo DiCaprio in the early years? Beyond Meat is aimed at consumers who are looking for a meat replacement that looks good and tastes good. The biggest attraction of Beyond Meat is that its products come surprisingly close to real meat in taste, odor, texture and appearance.
Fortunately for Beyond Meat, the $ 878 million annually growing market for meat substitutes was left open by major food players for startups such as Beyond Meat and privately owned Impossible Foods Inc. to close the gap. To take advantage of these broad market opportunities, Beyond Meat developed three vegetable products that match the largest meat categories worldwide: beef, pork and poultry.
But what caused Beyond Meat products to tick off in 11,000 American supermarkets was the company’s smart marketing strategy that sought shelf space where regular customers were looking for their meat, rather than just choosing vegans who accounted for less than 5% of US population.
The company’s growing revenues indicate that meat consumers in the United States are probably the company’s customers. From just $ 8.8 million in 2015, Beyond Meat’s net sales increased to $ 56.4 million in the first nine months of the 2018 fiscal year, according to the company’s prospectus. That number was 167% higher compared to the same period a year ago.
The story looks great and very reassuring for those who won Beyond Beat shares during the IPO phase or on the first day of the public debut. But for the future, we believe that this upward growth trajectory will not be straightforward.
Risks for competition
First of all, the Beyond Meat market does not have very high entry barriers. Learning from its success, more large and small food players will inevitably enter the market and fill the shelf space with more choices.
Tyson Foods Inc. (NYSE :), the largest American meat producer, is probably the first major threat to Beyond Meat. The company sold its stake in Beyond Meat just before the stock market introduction, thereby indicating that it plans to play hard in the market for vegetarian proteins
The company plans to speed up and develop its own alternative-protein business line, and every kind of protein is on the list of legumes and peas to mushrooms and insects, Justin Whitmore, Tyson’s chief sustainability officer said in March.
“We will make significant investments in space,” Whitmore told Bloomberg. “The companies and the ecosystem present to deliver proteins to the world can do the same for alternative proteins – the mechanisms of the supply chain all the way from the farm to your plate don’t necessarily have to change.”
In an environment with a beautiful murder, this means that Beyond Meat will have to spend a lot on R&D and marketing. These expenditures will make it more difficult for the company to be profitable faster. In the first nine months of 2018, the company lost more than $ 22 million on sales of $ 56 million.
Bottom Line
Beyond Meat has attracted the attention of a market in which a lot of money is chasing few good ideas. But in that process, their stock has become too expensive and risky. We do not think Beyond Meat & # 39; s rally justifies its 44-fold 2018 sales multiple in the long run, given the competitive threats from major players. The stock has run its course and is vulnerable to a correction.
