Beyond Meat is about as far from a “safe thing” as you can get

<p>As we go past all the excitement surrounding Beyond Meat (NASDAQ: BYND), it looks like the light at the end of the tunnel may actually come from an oncoming truck. If so, it could trace the heartwarming story of a promised land filled with endless rivers of faux beef cakes. This does not mean that there are no good reasons for Beyond Meats’ success this year. But rather, I question whether some of the bullish arguments are a little too good to be true.

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The company has proven to be among the heroic stocks on Wall Street in the midst of the new coronavirus crisis. In fact, the BYND share is higher than 20% so far, while the S&P 500 is above 10%.

Although it could not completely avoid virus-related challenges, it has been on a mostly upward trajectory since early April. Many investors are surprised by the meat-free meat company, which debuted on Nasdaq just a year ago.

There are really many reasons to motivate hype.

For example, the company recently announced that its products would debut in Starbucks (NASDAQ: SBUX) stores in China, with a rapid expansion expected. This is another big step for Beyond Meat, which has had product sales in fast food joints such as McDonald’s (NYSE: MCD) and YUM! Brands (NYSE: YUM) KFC, along with many sit-in restaurants.

Add to that the fact that real meat producers like Tyson Foods (NYSE: TSN) are dealing with supply chain issues, and it is likely that many will pick up faux meat products among the shortage. This should help boost the sales of grocery stores for Beyond Meat.

Of course, this is likely to be a temporary boost. It is unlikely to endure at the same rate after the meat supply chain has shrunk. Carnivores and omnivores will no doubt return to the real thing when it becomes available. This is not the same kind of story with companies like Netflix (NASDAQ: NFLX), where when you go cordless you never go back.

This is food we are talking about – both taste and cost mean a lot.

New questions leak long-term optimism

Even with these positive events, there is still reason to question the long-term fall behind the BYND share.

Some of these causes include the following:

The hype behind his debut in China may not lead to the significant success that many expect. At least not as fast as they think, because “Beyond Meat will probably have to compete on the basis of price alone.” It lacks the same brand name as it has in the US and soy products are less “taboo” in China. Although the company will benefit from an expected meat shortage, it is not the only player in the game. Key competitor “Impossible Foods … recently announced that its named burgers will be available at hundreds of new grocery stores.” This is likely to take some shine off their grocery store profits in the coming months. More than half of Beyond Meats’ revenue in 2019 came from restaurant sales. With the impact of social distancing on the restaurant industry still to be determined, the strength of this revenue stream is much less certain by 2020. As Motely Fool author Brian Stoffel points out, the company has not shown that it has a moat to secure its long-term position as an alternative meat industry leader. As it stands, apart from brand recognition, Beyond does not have many characteristics that the competition cannot replicate. Until then, it is much less of a safe thing despite the advent of meat-free meat movement.

There are more potential headwinds to consider; however, these stand out the most and counteract the latest bullish stories. But there is another question that will always come to mind when I think about whether it is a good stock to buy. As I suggested earlier, both taste and cost are very important when it comes to food, and I think at least one of these will be a bigger issue for Beyond Meat in these tough times.

Beyond Meat is still a luxury

By now, I’ll probably be a kind of meatless meat hater. After all, I am known to eat a 40 ounce steak sometimes (just ask my colleagues), and meat is still part of my diet (although my consumption of it has decreased gradually over the past year). But my skepticism towards BYND shares here is not based on personal taste. Rather, it is based on some basic mathematical and nutritional goals.

Yesterday I was in Harris Teeter and looked in the meat aisle, which, as before, was relatively barren. And that was when I stumbled upon a couple of Beyond Meat Sausages. This time I was much more tempted to try the company’s product (I actually like art meat in this format), but I went to another time filled with legumes and bought some lentil packaging instead.

According to the store’s website, four of the sausages sell for $ 6.99, and the packs of legumes I bought were $ 2.99 each (but sometimes they sell for much less, and this organic product is more expensive than regular lentils). While the sausages give four portions, the two lentil packages (at the corresponding price) give 18 portions. Each has the same calorie profile – 190 calories – and the protein is a little higher in the sausages, while the lentils have much more fiber.

Oh, and the lenses have a lot less fat too.

The point is that I can get more than four times as many meals of the organic lentils at the same price as I can with a package of faux meat sausages, all of which are still herbal.

The irony of the latest scary meat supply chain is that it still manages to highlight a point I have made before: “Beyond Meat is a luxury.”

Even when you throw real meat out of the picture, when you compare it to other herbal protein sources, its offerings are still very expensive. This is something that many bulls overlook when they see the huge increase in alternative meat purchases. People do not think exactly through things right now (and they go to the next “logical” conclusion, a false meat alternative), but when they see that their wallets are starting to be emptied and have hope for real meat back on the shelves in higher frequency, I expect that hype falters.

Right now, I would see this as a chance for Beyond Meat to mitigate the losses from its lack of restaurant sales, but the extent of this mitigation is currently at best speculative, as is the extent of the damage to its coronavirus revenue. . We will find out more when the company reports the results on 5 May.

The conclusion of the BYND share

To me, that’s what Beyond Meat will probably always be. A luxury. I will probably stop buying their sausages sometimes now that I have discovered them in my grocery store. But I will probably never see them as a base in my diet.

Despite the rapid increase in meatless meat sales, I do not think many others will see it as a staple either. If there was a strong indication that the adoption of vegetarianism / veganism – diets that expel meat completely – was actually on a significant increase, I might think otherwise. But that is not the case.

I do not doubt that many more will start buying beef from Beyond and other suppliers, but I doubt that it will achieve the same dietary income as whole foods that have stood the test of time. If it does, at least it’s not coming soon.

But it is often how many of the bullish arguments for BYND stocks are framed, as if meat-free meat will become a widespread staple within a few years. Although it became more common, who is to say that Beyond will still be a leader at that time? This is particularly questionable given Stoffel’s in – depth analysis, which reveals his lack of a moat to secure himself.

And yes, I think the placement of their products in Starbucks is a big deal – I think it will have an even bigger appeal there than some fast food joints. But I do not think it is enough to escape the reality of high prices in tough times.

I sound harsh here, but whatever you think, I want to repeat InvestorPlace contributor Will Ashworth’s sentiment for the stock (he’s been much more bullish on it before than I have):

“The last time I wrote about Beyond Meat was in March. At the time, I recommended that investors wait until the full consequences of the coronavirus are felt before investing in its stock. I still feel that way because I do not think the first quarter result will be as bad as some analysts think. That said, I think you will be able to buy it for $ 75 in the next few months. “

It is certainly possible that Beyond will surprise us with more positive news when it reports the result in a few days, but still it is probably best to stay on the page a little longer. Although there are good reasons to believe that the company will be at the forefront of the meat-free alternative movement, which could certainly be accelerated in a post-coronavirus world, it is far too uncertain to be able to gamble right now.

Robert Waldo has been the web editor of InvestorPlace since 2016. At the time of writing, he had no position in any of the above-mentioned securities.

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