Is Beyond Meat Beyond Saving?

Something unusual happened last week.

In the age of speedy information, a chyron flashed across screens stating McDonald’s (MCD) and Beyond Meat (BYND) had entered into a long-term agreement.

That story turned out to be false. But in the interim, shares of Beyond Meat surged and fell intraday, leading to a massive spike in search volume amongst both retail and institutional participants.

This made us curious…

The way we consume our food and the types of food we eat may be completely different 50 years from now. You see, 78% of all the agricultural land is used for livestock, including grazing land and cropland dedicated to the production of feed. 

Furthermore, 29% of the water in agriculture is directly or indirectly used for animal production. 

Simply put, this is not sustainable, and it’s causing severe impacts on our climate and constraint on our resources. 

As more and more people become aware of the problem, we’re seeing more people take up a plant-based diet, or add more plant-based foods to their diet. 

Leading the way is Beyond Meat (BYND), which isn’t profitable, but might be too important to fail. 

Check out our thoughts on the company below. 

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Beyond Meat (BYND) Business 

BYND manufactures and sells plant-based meat products across the globe. 

The firm operates under the following brands: Beyond Meat, Beyond Burger, Beyond Beef, Beyond Sausage, Beyond Breakfast Sausage, Beyond Chicken, Beyond Fried Chicken, Beyond Meatball, the Caped Steer Logo, Go Beyond, Eat What You Love, The Cookout Classic, The Future of Protein. 

BYND products can be found in Whole Foods, Walmart, Kroger, Costco, Albertsons, Sam’s Club, and Target. In addition, they can be found in restaurants like McDonald’s, Peet’s Coffee, PepsiCo, Starbucks, Pizza Hut, Panda Express, and Denny’s to name a few. 

The majority of the firm’s revenues draw from its retail sales. However, its international revenues are its fastest-growing segment. At the IPO, BYND boasted about 1,650 international outlets where you can find its products. But by December of 2021, that number jumped to approximately 58,000 locations. 

Furthermore, you can find BYND products in 90 countries across the globe. 

The company breaks its revenue streams into four segments: US Retail, US Foodservice, International Retail, and International Food Service

Financials

From 2018 to 2021 BYND has seen its revenues grow from $88M to $464M.

One thing that scares investors away from the firm is its gross margin which decreased during its growth spurt. For example, in 2020, its gross margin was 30.1%. That dropped to 25.2% in 2021.

Furthermore, the firm operates at a negative free cash flow. This is a big concern for investors given we are in interest rates and inflation is expected to rise over the next 1-2 years.  

BYND has a current ratio of 11.17x. Its highly liquid assets are 11.17x greater than its short-term liabilities. It has a quick ratio of 8.25x, which means its highly liquid assets are 8.25X greater than its short-term liabilities. So the good news is they don’t need cash to expand.

However, the company’s debt-to-equity ratio which stands at 8.7X. That means the money owed to others is 8.7X greater than the shareholders’ equity. 

The capital structure for BYND is as follows: total debt of $1.16B and cash upwards of $733.29m. And a market cap of approximately $2.26B

Valuation

BYND has a price to sales ratio of 5.2X, which is significantly higher than the sector median of 1.27X. 

The food products category isn’t considered a growth sector. Yet, that is where BYND has shined the brightest. Its revenue growth YoY is 14.2% which is significantly higher than the sector median of 9.9%.

Our Opinion – 5/10

While BYND isn’t the first “fake meat” company, one can argue it was one of the first to make it edible. And while the firm is not profitable yet, it is the only public company devoted to this growing space. 

Shares are down approximately 40% YTD, but we aren’t quite sold yet.

We simply don’t know when the firm will generate cash flow, which is now top of mind for most investors.

This is more of a firm we’d rather wait and see before testing the waters.