The Beyond Meat Stock Forecast You’re Looking For
It’s been about 16 months since The Rona first reared its ugly head and you wouldn’t be able to tell it by looking at the markets. The S&P 500 is up +30% and the NASDAQ up +55% from the day the news first broke. The effects of the pandemic on the global economy were devastating by any measure. The trillion-dollar travel industry was all but decimated for over a year, debt has increased and wages reduced, and supply chains went haywire. Ignorance is bliss, as America’s media companies, the cheerleaders of divisiveness, are consumed with everything except what’s important – like this chart:
Bloomberg put out a piece yesterday titled “The Grocery Price Shock Is Coming to a Store Near You” which talks about how their Agriculture Spot Index (seen above), which tracks key farm products, is surging, leading a senior food economist at the U.N to exclaim “there seems to be sort of a bullish force behind the prices internationally.” It hardly comes as a surprise for those who witnessed firsthand how food producers in the U.S. were throwing away food or letting it rot last year because of supply chain impacts. Maybe it’s the bullwhip effect that’s causing the price of food to soar, but our job isn’t to figure out why there may be turmoil ahead. It’s to navigate the risky world of tech investing while minimizing risk as much as possible. Today, we’re going to talk about how rising food prices might affect plant-based meat producer Beyond Meat (BYND).
Investing in Beyond Meat Stock
Our first piece on the Beyond Meat IPO was a hit with our readers, leading one to explain, “The author sounds like a jerk with his vegan bashing. Grow up.” (That’s a fair comment because the author is indeed a jerk who believes humans didn’t fight their way to the top of the food chain to nibble on lettuce leaves.) At that time, we saw too much hype around the offering, and passed on adding it to our portfolio.
November 2020 found us Taking a Second Look at Beyond Meat Stock where we looked at the bullish case from Rethink and decided to go long the stock. We emphatically believed at the time, as we do now, that the only way this company will ever show the sort of exponential returns we’re hoping for is if the price of fake meat can achieve a price parity with real meat. You can only imagine how happy we were to see that prices are dropping, at least for Beyond Meat’s competitor, Impossible Foods:
With sales at an all-time high, Impossible Foods is cutting prices 20% for 17,000 grocery stores in the United States.Impossible Foods press release, Feb 2021
Sounds good on paper, but the numbers aren’t even close to ground beef prices. The press release talks about “$6.99 for a 12-oz. package,” which translates to $9.32 a pound for fake meat. Ground beef costs about $4 a pound, so even after these price cuts, we’re still expected to pay twice the price of real meat for fake meat. Not good.
Figuring out what the average price per pound that Beyond Meat’s faux beef product sells for isn’t easy. After poring over their latest 10-K and a few 10-Q filings we were unable to see where this information is provided. In the transcript of their Q4-2020 earnings call, Beyond Meat says, “Overall, net price per pound was $5.59 in the fourth quarter of 2020 compared to $5.79 in Q4 2019.” In one year they were able to drop costs by 3.45%. At that rate, it would take ten years before they can achieve price parity with beef – about $4 a pound. That’s assuming the price of beef won’t increase over time, which it likely will.
The Cost of Yellow Peas
In perusing the recent 10-K from Beyond Meat, they talk about how their product gets produced:
We use proteins primarily extracted from yellow peas, as well as mung beans, faba beans, brown rice and other plant stock, through a physical process to separate protein and fiber. We then apply heating, cooling and pressure at rapid and varied intervals to weave the protein into a fibrous structure to create woven protein. Once we have the woven protein, we then add the remaining ingredients, such as water, lipids, carbohydrates, flavor, color, trace minerals and vitamins.
Applying heating, cooling, and pressure sounds like a very energy-intensive process. The company doesn’t give us enough information about cost drivers so that we can assess the likelihood of price parity. What they do let us know is that yellow peas are the primary source of protein for their products, and that they’ll impact cost of goods sold (COGS) as follows:
As of December 31, 2020, a hypothetical 10% increase or 10% decrease in the weighted-average cost of pea protein, our primary ingredient, would have resulted in an increase of approximately $3.2 million or a decrease of approximately $3.2 million, respectively, to cost of goods sold.
COGS for 2020 was $284.5 million so here’s what the sensitivity analysis looks like:
- Price of yellow peas rises 10% = 1% impact on COGS (284.5 / 3)
- Price of yellow peas rises 50% = 5.3% impact on COGS (15 / 284.5)
- Price of yellow peas rises 100% = 10.5% impact on COGS (30 / 284.5)
If the price of yellow peas doubles in a year like corn has, the overall impact starts to become meaningful at 10% of COGS, otherwise pea prices won’t be notably impacting COGS. Beyond Meat probably wouldn’t mention this if they were hedging the cost of yellow peas as an input, but here’s no evidence of that in the 10-K.
Now that we’ve alleviated any concerns about how Beyond Meat can manage a possible increase in the price of peas, let’s talk about how they plan to cut the cost of their products since primary ingredients don’t seem to compose a lot of the total cost.
Cutting the Cost of Fake Meat
In Beyond Meat’s Q4-2020 earnings call, the first question asked by an analyst was how the company planned to respond to their competitors’ price cuts. The CEO’s answer was that his company is two years into a five-year goal “to underprice animal protein in at least one category” with focus placed on something beef-related. And they don’t plan to compress margins to get there. Said the CEO:
We’re going to get there by a very thorough walk through our supply chain, our production processes, our logistics.Beyond Meat CEO
It’s safe to say that we’ve already gotten past the low-hanging fruit and that they’re already enjoying economies of scale. They may try to vertically integrate the operation, but then they’re not focused on what they do best which is developing plant-based proteins. The importance of achieving beef price parity isn’t reflected in Beyond Meat’s investor deck which doesn’t mention progress being made towards reducing the cost of their products. We believe it should be a focal point.
Beyond Meat also talks about “trial pricing” and one wonders how many large restaurant chains they’re currently selling to are being offered products at significantly reduced prices. Every time a large restaurant chain mentions the name “Beyond Meat,” that’s free advertising for the company. That’s why they were so pissed when McDonald’s failed to clarify who was providing the fake meat.
We’re also not told what average price points these products are being sold at through each of their various channels. Selling in bulk to restaurants will decrease costs, but by how much? Just how low can they go? We’re left feeling that key metrics – mainly average sales price per channel and average cost per pound to produce – are missing which would help us properly monitor progress of what we view as a critical initiative.
… if we can match the taste of animal protein, provide a clear case for superior nutrition, and someday, offer at a lower price than animal protein, it would be a rare consumer who rejected the thesis and products.Credit: Beyond Meat
Agreed, so start reporting this key metric so investors don’t have to go digging for it.
A Beyond Meat Stock Forecast
Regular readers may be wondering why we chose a clickbait title for this piece, so allow us to quickly explain. It’s all about capturing a valuable commodity – engaged eyeballs.
For its $8 billion market cap, Beyond Meat is an incredibly popular stock based on the number of searches it receives every month. That’s not just because Wall Street loves plant-based food, it’s one benefit of having a recognizable brand that’s first to market and talked about a lot. People want to invest in your product, but they won’t do it with diamond hands. Popular stocks often attract newbie investors, something that becomes evident when you consider the fourth most popular search relating to beyond meat stock is “beyond meat stock forecast.”
We’re here to fill those shoes. The forecast for Beyond Meat stock is cloudy with afternoon drizzles expected for the remainder of the month.
Exactly what in the name of Zeus are you looking for when you plug “STOCK X + forecast” into a search engine? A bunch of babble is what you’ll get, unless you land on this insightful piece, which is also a bunch of babble, but at least it was written by an MBA who shows their work.
To Buy or Not to Buy
Ask a famous actor what the price of milk is and they won’t have a clue. Unless you’re out there in stores buying protein to feed a family, you won’t understand the behavior of average consumers. When the cost of food rises, people gravitate towards substitutes that are cheaper. It’s why McDonald’s is pretty resilient during recessions. Is the sudden surge in the price of agricultural products a good thing for Beyond Meat or a bad thing?
If the price of beef goes up, that’s a good thing for beef substitutes of which there are plenty. Fake meat also needs to compete against two cheap sources of protein like pork and chicken, the latter of which is less than half the price of beef. Beyond Meat admittedly doesn’t taste half bad, which means now they’ve got to nail their cost targets. If you’re thinking of coming on board as a new investor, the stock price appears to have stabilized over the past year (see below stock chart), presently trading at around $130 a share.
If you were thinking about starting a position in BYND stock using dollar-cost-averaging, the current share price is not a bad place to start. We’re not adding to our position or subtracting, but we are going to be monitoring the progress they’re making towards driving down costs.
In the past year, corn prices have doubled. Wheat and soybeans have increased by +80% and +30% respectively. If times get tough for your average consumer, we can reasonably expect them to see over-priced meat substitutes as less of an option. It’s critically important that Beyond Meat brings the price of their products down while providing more transparency to investors as to the progress being made.
Are we going to keep Beyond Meat as one of 32 positions in the Nanalyze Disruptive Tech Portfolio? Become a Nanalyze Premium subscriber and we’ll let you know all the tech stocks we’re buying or selling as it happens.