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 160% from the lows seen in March 2020. With a market cap of over $9.6 billion, the stock now trades a little over 17x projected 2021 revenues, despite the fact that 2020 was the toughest year for the company due to the pandemic and it also missed analysts’ expectations for Q1 2021. Does this make the stock expensive considering the recent volatility in the stock price? Probably not, considering that revenues are likely to grow almost 2.7x by 2023, with net income turning positive in 2022 and growing steadily thereafter, generating continued returns for shareholders.
We believe Beyond Meat Revenues have the potential to rise close to 2.7x from the level of $407 million in 2020 to $1.1 billion by 2023, representing a growth rate of roughly 40% per year (for context, the compounded annual growth rate was a very healthy at 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 a rise of 36.6% y-o-y in 2020, which was sharply lower than historical growth rates. However, this trend is expected to reverse in the short term 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. After much anticipation, Beyond Meat announced a three-year partnership with McDonald’s in February 2021, under which BYND will be McDonald’s preferred supplier for the patty in the McPlant, a new plant-based burger being tested in select McDonald’s markets globally. Additionally, Beyond Meat is introducing its plant-based meatballs in Coles, the second largest supermarket chain in Australia with over 2,500 stores. Organic growth along with benefits from the recent partnerships are expected to support continued healthy growth in retail as well as the restaurant segments of Beyond Meat, potentially taking the company’s revenues to almost $1.1 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 remained negative at close to -13% in 2020 (due to the impact of the pandemic), the company’s operations are expected to improve and turn profitable in 2022, with projected margins of 3%. 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 $1.1 billion and 6% margins, almost $66 million in net income is possible by 2023.
Now, if Beyond Meat’s revenues grow 2.7x, the P/S multiple will shrink by more than 60% from 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 2.7x over the next few years, instead of the P/S shrinking from around 17x presently to less than 10x, a scenario where the P/S metric falls more modestly, perhaps to about 13x 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 a real possibility in the next two 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 $9.6 billion currently.
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