Will The Beyond Meat Hype Last?
Beyond Meat went public in May earlier this year with a share price of $25 per share and is currently valued at nearly $200 per share. That represents an increase of over 700% in just a few months. So what is behind this astronomical growth in the stock price, and Is the company really doing that well?
The company doesn’t seem to be as strong as its stock price would suggest. For one, Beyond Meat is having supply-chain problems. Beyond Meat doesn’t actually produce the fake meat sausages and burgers. Instead, the company only produces a woven protein that then gets turned into meat by co-manufacturers. The problem is that the company only has two co-manufacturers, both of which are already unable to keep up with demand. Beyond Meat can find other co-manufacturers, but it is an expensive and time-consuming process. Moreover, Beyond Meat’s $6 million credit facility may limit the company’s ability to grow fast enough.
Secondly, the company is doing well primarily because it spearheaded the market. That might not be the case for long; established competitors like Tyson and Nestlé are also looking to enter the plant-based meat market, and Beyond Meat should be worried. Tyson and Nestlé have established distribution channels and ties with fast-food chains like McDonald’s, as well as a name that consumers recoganize and trust. Furthermore, their capital costs are going to be much lower, which means their products are going to be cheaper than Beyond Meat’s burgers. Competing against these players will be an uphill battle for Beyond Meat, and the stock’s price will probably take a hit. In fact, the stock is now trading at a price to sales ratio of over 800, whereas Tyson’s stock is trading at a modest 0.7 P/S ratio. This indicates that Beyond Meat’s stock is massively overvalued and will probably face a crippling correction.
Thirdly, looking at the actual product, I’m not so sure it will continue to do well. The burgers are supposed to taste like real meat but fall short in doing so. Furthermore, the burgers aren’t actually healthier than meat; Beyond Meat burgers have four times more sodium as well as more fat and less protein than actual meat burgers. The burgers are also four times more expensive than good old-fashioned beef burgers. Once the novelty of Beyond Meat fades, the company is going to be left with a small target audience who doesn’t mind paying more for burgers that taste as good and aren’t healthier.
All the reasons above suggest that the company is not as strong as its stock price will have you believe. However, the stock continues to climb because it is on a short squeeze. Most investors initially tried to short the stock and are now having to buy back at higher rates to cover their positions, which is causing a further increase in price. The stock could experience a correction in October when the 180-day lock in period expires; the market might be flooded with more shares, which would cause downward pressure on the stock.
For now, Beyond Meat is the new hot stock but it remains to be seen how long this hype will last.
Written by Sonakshi Dua, Edited by Daniel DiPietro, Will Turchetta & Alexander Fleiss