Beyond Meat Inc stock (NASDAQ: BYND), a leading edge food company that produces meat directly from plants – an innovation that provides taste and texture of animal-based meat products along with nutritional benefits of plant-based products – has seen its stock rise by over 65% in the last one year. With a market cap of almost $8 billion, the stock now trades close to 19x projected 2020 revenues, despite the fact that the company is likely to post losses this year as well. Does this make the stock expensive considering the recent volatility in the stock price? Probably not, considering that revenues are likely to grow almost 3x by 2023, with net income turning positive in 2021 and growing steadily thereafter, generating continued returns for shareholders.
We believe Beyond Meat’s revenues have the potential to rise close to 3x from the estimated level of $410 million in 2020 to $1,150 million by 2023, representing a growth rate of roughly 40% per year (for context, the compounded annual growth rate was a very healthy 164% between 2016 and 2019). The coronavirus pandemic put a halt to the company’s fast-growing revenues as shutting down of restaurants due to the lockdown significantly affected the company’s restaurant and foodservice business, which was the fastest growing segment for BYND until 2019. BYND revenues saw only a marginal rise of 2.7% y-o-y in Q3 2020. However, this trend is expected to reverse and the company will once again get on its fast growth track and there are multiple trends that support this growth outlook.
Firstly, the gradual lifting of lockdowns in recent months will help the restaurant segment register strong growth along with sales from retail chains. Additionally, the company’s new partnerships will also drive impressive top line growth. After tying up with Dunkin’ soon after its IPO, Beyond Meat entered China in 2020. BYND entered into a partnership with Alibaba Group, whereby its products will be available in Freshippo stores (Alibaba’s supermarkets) in Shanghai. This is, in fact, after BYND partnered with Starbucks, Yum Brands, and Sinodis. There are expectations of a possible announcement of a partnership with McDonald’s as well in 2021. Organic growth along with benefits from the recent partnerships are expected to support continued healthy growth in retail as well as restaurant segments of Beyond Meat, possibly taking the company’s revenues to almost $1.15 billion by 2023.
Combine revenue growth with the fact that Beyond Meat’s net income margins (net income, or profits after all expenses and taxes, calculated as a percent of revenues) are on an improving trajectory. They have sharply improved from -93.3% in 2016 to -4.2% in 2019. While Tyson Foods posted almost 5% margin in FY2020 (ending 3rd Oct, 2020), the company is a dominant force in the market with its size being significantly larger in comparison, which makes it probably unreasonable to expect similar margins for Beyond Meat, which has still not made any profits. Though BYND’s margins are expected to remain negative at close to -5% in 2020 (due to the impact of the pandemic), the company’s operations are expected to turn profitable in 2021, with projected margins of 2.4%. However, it’s reasonable to assume that as Beyond Meat’s business gains scale and the company expands aggressively, it can boost margins to the levels of Tyson Foods in the next few years, so we estimate roughly 6% margins by 2023. Considering our revenue projections of roughly $1.15 billion and 6% margins, almost $70 million in Net Income is possible by 2023.
Now if Beyond Meat’s revenues grow 3x, the P/S multiple will shrink to one-third its current level, assuming the stock price stays the same, correct? But that’s what BYND’s investors are betting will not happen! If revenues expand 3x over the next few years, instead of the P/S shrinking from around 19x presently to little over 6x, a scenario where the P/S metric falls more modestly, perhaps to about 12x looks more likely, considering the fact that profitability is also projected to see sharp improvement. This would make growth in Beyond Meat’s stock price by about 60% a real possibility in the next three years, taking its stock price to $200. Though the stock is likely to remain volatile in the near term, the strong growth outlook will help it once again reach the $200 level once the current crisis abates. This would in turn take BYND’s market cap to about $14 billion by 2023, from $8 billion currently.
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