Beyond Meat, whose plant burgers can fool even die-hard meat lovers, is up 700% since its IPO. Early investors say it will change how we eat, but there are signs Wall Street's binge could end badly. (BYND)

Beyond Meat CEO Ethan Brown speaks before ringing the opening bell at Nasdaq MarketSite, May 2, 2019 in New York City. Valued at around $1.5 billion, Beyond Meat makes plant-based burgers and sausages. The company's opening trade was $46.00 per share.

  • Beyond Meat’s shares are up more than 675% since its IPO, giving it a market valuation of nearly $12 billion — or more than 100 times its sales over the last year.
  • That valuation implies that investors expect phenomenal growth for years to come.
  • Early investors say they saw its potential years ago.
  • But skeptics think Beyond Meat will struggle to meet such expectations, particularly with competition increasing.
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Greg Bohlen knew early on that Beyond Meat could be big.

When he first met with the company in 2011 — two years after Ethan Brown founded it — Beyond Meat was little more than an idea and some university-developed technology for manufacturing simulated animal muscle. But the company touched on two of the big themes that make Bohlen excited when it comes to potential investments — transparency and efficiency.

Beyond Meat’s process for making artificial meat was far more resource and energy efficient than the way cows or even chickens create muscle. And while consumers generally don’t want to see what happens on a kill floor, they’d find nothing to offend them if they saw Beyond Meat’s manufacturing process.

“I thought they’d change the world,” said Bohlen, a managing general partner at Union Grove Venture Partners, which invested in Beyond Meat in its series B funding round in 2012. “And they are, for the better.”

Bohlen’s optimism is understandable. After all, he’s on Beyond Meat’s board, and he owns a 1% stake in the company. But he’s not the only one bullish on the meat alternative product maker these days.

Beyond Meat’s stock has soared

On its first day of trading in May, Beyond Meat’s stock nearly tripled its $25 initial public offering price. Fewer than seven weeks later, it was trading at more than $200 a share. Although it’s fallen off since then, it spiked again on Monday, leaving the shares up nearly 700% since the company’s IPO.

Read this: Beyond Meat is up more than 500% since going public — and new data suggests the company’s sales are living up to the hype

Greg Bohlen, managing partner at Union Grove Venture Partners, and board member at Beyond Meat.That’s given Beyond Meat a market capitalization of almost $12 billion. That figure means that public investors are ignoring the company’s nearly $31 million in losses over the last year and valuing the alternative meat maker at 103 times its revenues over the same period — or 57 times its expected sales this year. Whichever way you look it, that’s a heady valuation — and one that implies investors expect it to post super-charged growth for years to come.

The challenge Beyond Meat will face in meeting those expectations has spurred skeptics to start speaking out. Of the seven financial analysts who had ratings on its stock earlier this month, none considered it a buy and one, Erlan Abdikarimov, of Kazakhstan-based Freedom Finance, already had a sell rating. Wall Street analysts rate few stocks as “sells,” and are typically even more reluctant to put such a label on new issues.

The rise in Beyond Meat’s stock price “was fueled by very bold expectations, the likelihood of which is not obvious,” Abdikarimov said in an email.

In June, JPMorgan, one of the lead underwriters of Beyond Meat’s IPO and the only firm that rated the stock a “buy,” downgraded the fake-meat maker to a “neutral” rating. The downgrade was purely due to valuation because the stock’s rally meant it was trading well above its analysts’ price target, JPMorgan said.  

A Beyond Meat representative declined to comment, saying that the company was in a quiet period.

The meatless meat industry has plenty of potential

Whether or not Wall Street has gotten ahead of itself, Beyond Meat clearly has big potential. In the United States alone, consumers bought $78 billion worth of raw meat in 2018, according to market research firm Euromonitor. Other researchers have estimated that total global meat industry sales – including purchases by restaurants, schools, and other institutions — are in the trillions of dollars each year. Even if only a small portion of meat purchasers started buying Beyond Meat’s burgers and other products instead, the company could see billions of dollars in sales.

In this photo illustration, packages of Beyond Meat There’s reason to think that’s more than just a pipe dream. Last year, US consumers bought $1.4 billion worth of meat substitute goods at retail, according to Euromonitor, mostly in the form of established products, such as tofu burgers and the like. Worldwide, such products were even more popular, garnering nearly $19 billion in retail sales.

That’s still a small portion of the overall meat market, but the new generation of meat substitutes such as those from Beyond Meat and competitors such as Impossible Foods could help such products attract a much larger audience. Compared with their earlier predecessors, Beyond Burgers and Impossible Burgers do a much better job of simulating the taste, texture, and eating experience of meat.

The burgers, which, in Beyond’s case, are made from ingredients including peas, mung beans, rice, and beets, bleed and brown like real ground beef. The latest Beyond Burgers are also designed to simulate the marbling found in real meat; instead of coming from bits of animal fat, the white, savory spaces are made from coconut oil and cocoa butter.

In addition to offering products that taste more like the real thing, the new purveyors of meat alternatives have also started to gain wide distribution for their products. Consumers can find Beyond’s burgers, sausages, and taco meat in Whole Foods, Kroger, and Safeway grocery stores. They can buy alternative meat burgers from Beyond or Impossible at chains including Red Robin, Burger King, TGI Fridays, and Carl’s Jr., as well as at many smaller, local restaurants. Few of these outlets ever offered a tofu burger or anything like it.

Such factors are “making it easier for people to jump into these things,” said Dewey Warner, a food-industry analyst at Euromonitor. “It’s easier to bring people into the fold,” he continued, “when you have more attractive, better tasting items.”

Beyond Meat is following the path of plant-based milks

Beyond Meat is also likely to benefit from the trend of people limiting their intake of meat and other animal products, Warner said. For health or environmental reasons, a growing number of consumers have cut back on their meat consumption, even if they haven’t become full-on vegans or vegetarians, he said.

The milk and dairy industry could offer a preview of what’s to come, he said. Milk consumption in the US has been declining for years, in part due to health and environmental reasons, according to data from the US Department of Agriculture. Meanwhile, sales of plant-based alternative milks, such as those made from soy, rice, and oats, have been booming and now represent more than 10% of the sales of traditional dairy milk, according to figures from Grand View Research and Dairy Farmers of America.

Sales of plant-based milks have “become, definitely, a significant part of the market,” Warner said. The big question, he continued, “is whether and when plant-based meat substitutes might achieve a similar status.”

almond milkBeyond Meat’s early results suggest that could happen sooner than many people realize. The company’s sales more than doubled in 2017 from 2016 and grew even faster last year, jumping by a whopping 170% to $88 million.

Company officials are projecting its sales will again more than double this year, rising to more than $210 million. Beyond Meat was well on its way to achieving those results in the first quarter, when its sales more than tripled from the same period a year earlier to $40 million. Helping boost its sales, the company not only revamped its burger this year, but broadened its lineup in 2017 to include simulated sausages. It’s also benefited from Brown’s insistence that grocery stores sell its products alongside real meat.

“Ethan’s stubborn drive to make sure the Beyond Burger was sold in the meat section of US supermarkets turned out to be transformative for the business,” said James Joaquin, a managing director of Obvious Ventures, in an email.

Like Bohlen, Obvious saw Beyond Meat’s potential early on. Through their Obvious Group company, Twitter founders Ev Williams and Biz Stone, invested in the startup in 2012. Williams’ subsequently launched Obvious Ventures made further investments in Beyond Meat.

What prompted Williams and Stone’s initial investment was the belief that factory farming of animals was unsustainable and that, as a result, people would reduce their consumption of meat, Joaquin said.

That thesis “still holds true today,” he said. “The founding team’s vision perfectly aligned with our … thesis: fund startups that combine profit and purpose to reimagine huge categories.”

JPMorgan estimates that Beyond Meat’s revenue could reach $5 billion in 15 years, with plant-based meat alternatives from Beyond Meat and other companies capturing a 10% share of the overall meat market.

The company faces a big challenge and increased competition

Still, for all the potential of the alternative meat industry and its business in particular, Beyond Meat faces an enormous challenge in meeting Wall Street’s sky-high expectations. And it’s not at all clear that it will be able to do it.

impossible burgerWhile some consumers, particularly in more liberal, urban markets, have been cutting back on their meat and dairy consumption, the company could find a less receptive audience in other, more conservative parts of the country, said Euromonitor’s Warner. In rural or less affluent areas, many people see nothing wrong with eating beef or chicken and may be turned off by the idea of eating something that’s artificial, he said.

“They’re just not sold on it yet,” he said.

Another turn off for some consumers could be the price. In the supermarket, Beyond’s burgers cost more than — sometimes even twice as much as — regular ground beef patties.

Selection, too, could limit sales. For now, Beyond only offers patties, taco meat, packages of ground beef substitute, and its sausages. It used to offer simulated chicken strips, but doesn’t sell them any more. Consumers also won’t be able to find anything simulating a ribeye steak or stew meat, much less pork or lamb alternatives.

What’s more, Beyond Meat already faces significant and growing competition. Impossible Foods has raised $777 million, including a $300 financing round in May. Its burgers are on the menu at Burger King, the company plans to start offering its products in grocery stores later this year.

Food giant Nestlé announced last month that it will offer a plant-based burger starting this fall. Days later, Tyson Foods, another industry behemoth, announced it will start offering meatless chicken nuggets this summer and this fall will introduce burgers that include both meat and non-meat ingredients.

Beyond Meat’s stock fell following both announcements, indicating that even bullish investors recognize that such developments could limit its prospects.

Those kinds of considerations are what led to Abdikarimov’s sell rating.

“The market … underestimates the potential competition in the synthetic meat segment from large players,” he said. It also, he continued, “overestimates the scale of penetration of synthetic meat consumption in society.”

For his part, Bohlen thinks such concerns are overblown. The meat market is so large — and the potential market for alternative meat products likewise — that there’s more than enough room for multiple players to participate and do well, he said. And Brown and his team at Beyond Meat have shown that they are determined to keep improving their company and product, he said.

To him, the Beyond Meat’s stock price simply reflects its huge potential.

“I think people, for maybe the first time in public markets history, saw a company that was both deeply convicted and a market where the world was crying for change,” Bohlen said. “And it delivered that change in a way that continuously surprises.”

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