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investment thesis
Despite the company’s current challenges, including high debt, operational inefficiencies, and weak sales that are the cause of what I believe is poor product-market fit (PMF), I am confident that Beyond・Meat (Nasdaq:bind) total The addressable market (TAM) could see significant expansion, especially under a scenario in which an avian influenza outbreak impacts U.S. cattle supply. While I’m not a consumer myself, events like this could be a catalyst for some red meat consumers to explore plant-based alternatives, and may help the wider population who have or have already made the transition. The company’s market share could increase as it promotes new, healthier product lines to capture consumer groups. I’m just starting to explore health-conscious options.
In my opinion, Beyond Meat’s strategic efforts to turn around operating costs and new market expansion opportunities are enough reasons for a strong buy in a high-risk, high-reward scenario.
background
Beyond Meat is one of the pioneers in the plant-based meat industry, but Beyond Meat’s high debt, management inefficiency, and poor sales due to weak PMF are contributing to consumer uncertainty regarding meat alternatives in a competitive space. I think it makes the problem of perception even worse. .
When we went public in 2019, we initially experienced a temporary increase in sales due to changes in consumer purchasing patterns due to the COVID-19 pandemic. BYND stock benefited This was strongly influenced by the warm public reception for vegan options at the time.However, the stock price has fallen almost since then. 83% It quickly had analysts reconsider the recommendation.Hype for non-meat alternatives from curious consumers is about to begin faded The market is treating artificial meat as a novelty rather than a permanent dietary change (I believe).
This is where I think the problem with Beyond Meat (traditionally) lies. There is a dichotomy in that people who avoid red meat often don’t like the taste of red meat. Conversely, people who prefer red meat have little reason to switch to more expensive alternatives that mimic what they can already consume.
Additionally, economic pressures such as inflation and rising costs of living have led consumers to seek cheaper protein sources from premium-priced alternatives.Research shows that Beyond Meat products It has a price It costs about three times as much per pound as chicken and almost twice as much as pork.
Due to this, the company has embarked on major restructuring activities and plans to raise prices and cut costs in order to balance sales and bring the company into the black (profitability). This includes at least streamlining operations and reducing expenses. $70 This year it’s 1 million. Additionally, Beyond Meat’s management team is working to optimize production. footprint and improve gross profit margin.
The company is working hard to rebuild, and the ongoing avian influenza outbreak could impact Beyond Meat’s essential poultry and beef industries with reduced supplies and corresponding increased supplies. I think it’s sexual. price For chicken, egg and beef products.
Avian influenza
Avian influenza, commonly known as avian influenza, is of great concern because of its impact on the poultry industry, wild bird populations, and global public health.had a significant economic impact damage This problem has arisen in the global poultry sector as large numbers of infected and infected birds need to be culled to control the spread of the virus. Controlling avian influenza to limit transmission by migratory birds has proven difficult, and outbreaks in domestic poultry populations are likely to recur. spread This year we will send even more livestock into the country.
The U.S. poultry industry has seen a resurgence of outbreaks since 2022, infecting more than 90 million chickens, 9,000 wild birds, and 34 dairy herds. report. Owners are being forced to kill affected chickens, which means huge economic losses, supply chain disruptions and increased prices for poultry products. The recent detection of avian influenza in U.S. dairy cows confirms low mortality rates in cows, although the presence of the virus in cows and the potential for milk contamination is reduced by pasteurization. , raising concerns about food safety and broader economic implications.
Livestock farmers face a moral hazard when testing livestock for viruses. The fear of discovering an infected herd can lead to huge economic losses as affected cattle may be at risk. Weeded out or quarantined. In my opinion, this is not surprising since this dilemma prevents aggressive health screening and is likely to lead to unchecked spread of the virus. Even the US government is already concerned that there aren’t enough livestock being raised. tested Antivirus.
For poultry farmers, the impact is severe. Last month, the country’s largest raw egg producer announced: detected The virus was transmitted at one of the facilities in Texas.I’m amazed at the speed of the market react These days, news of the spread of infection is being reported.
In this regard, I believe these trends could accelerate potential changes in US consumer behavior. Several research studies have proven that the change in purchase intentions related to the severity of the epidemic is true. China, Italyor South Korea.
How do Q1 results relate to this?
The first quarter results themselves were somewhat underwhelming for Beyond Meat. The company reported the following earnings. $75.6 million With a difference of $597,000, EPS was -$0.72/share, a difference of 3 cents.
In terms of cost savings:
Gross margin increased 4.9% compared to each of the previous three quarters, but decreased from 6.7% in Q1 2023. -1st quarter call
Given that revenue of $75 million was down 18.03% year over year, we believe this was primarily due to cost reductions.
Operating expenses for the quarter were $57.1 million, a decrease of $6.8 million from the same period last year. -Q1 call
Essentially, in some ways this was a good decision (the company outperformed its earnings). In another sense, they missed out on revenue.
To be clear, I expect this theory to be developed primarily based on the rapidly spreading avian influenza epidemic in the United States. As mentioned previously, this should solve many of Beyond Meat’s problems (it would raise the natural price of beef and chicken to roughly match Beyond Meat’s price, and at the same time The company’s profits will also increase).
evaluation
Beyond Meat is expected to be profitable $323.35 This year’s revenue will reach $1 million, but the growth rate is -5.83% due to operational and sales issues. Analysts remain reserved about sales growth in the coming years, expecting an increase of 6.59% in 2025 and 9.68% in 2026.
The real story for me, again, is the company’s potential to capture more of the beef and chicken market. Keep in mind that outbreaks in bird and cattle herds in the United States are in many ways a knockout risk (supply could be significantly reduced due to the exponential spread effect of this pathogen).
Currently, the market size of red meat (beef + pork) and chicken in the United States this year is as follows: $93.92 billion and $40.49 1 billion each. If Beyond Meat were to capture a total addressable market (TAM) equivalent to 1% of these two markets, it would be worth $1.341 billion, potentially valuing the company at $1.694 billion (industry after applying the future P/S multiplier). 1.26 Based on this revenue earned). This represents an increase in valuation over its current market capitalization of approximately $1.161 billion. $532 million. In other words, this is about a 218% increase from today’s valuation.
Thesis risk
Like other players in a trend-driven industry, it is often difficult for initial enthusiasm to translate into sustained demand, but the alternative meat sector has recently suffered the same fate in the United States. Venture capital investments declined sharply after peaking at $7 billion in 2021, 1 dollar Nevertheless, Beyond Meat’s main competitor, Impossible Foods, has outperformed its competitors in terms of new product launches and expanding its retail presence. The former is 50% Beyond Meat, on the other hand, saw sales decline across nearly all channels.
Beyond Meat’s major fast food partnership also failed to materialize as a permanent menu item. many Some of the company’s products, which were featured in Dunkin’, Tim Hortons, Kentucky Fried Chicken, Pizza Hut and Taco Bell, no longer exist, and two years after launching a joint venture with PepsiCo to make meatless jerky, the company changes the product name to “ stop Focus on new products instead.
Inflation has also affected consumer behavior, particularly in discretionary spending categories such as non-meat alternatives. Part of the reason for Beyond Meat’s slump in sales is Cost of living They are squeezing consumers into choosing more staples and cheaper alternatives over premium-priced plant-based meat alternatives.
And then there is the so-called misinformation motion Beyond Meat has been trying to disprove that for almost a year. The Center for Consumer Freedom (CFF), run by lobbyist Rick Berman, has been running ads attacking plant-based foods, essentially playing to the fears of many unsuspecting people. Beyond Meat had a series of reactions. advertisement in 2023 to allay concerns.
In my opinion, the company is proactively addressing all of this.As an example, the last time (February 2024) financial statementCEO Ethan Brown announced that the company has begun a major restructuring to improve its finances.
…We aimed to accelerate our transition to a leaner operating structure. As part of these efforts, we have established a minimum reduction of $70 million from his 2024 operating budget. We recorded approximately $95.6 million in non-cash charges primarily related to inventory, assets that are currently considered to be in excess and no longer consistent with budget. Continue to integrate production sites on the path to profitability. -Q4 call
I think investors should also keep an eye on the impact of its latest product, Beyond IV, as it attempts to innovate with new ingredients that are lower in fat and sodium as part of this shift in purchasing trends.
conclusion
Beyond Meat faces significant challenges, including declining sales, increased competition and the effects of inflation that are straining consumer budgets. The alternative meat sector is currently depressed, with high prices and consumer skepticism impacting consumer demand. Despite these obstacles, market dynamics such as the avian influenza epidemic have driven up the price of traditional animal meat, and consumer prejudice that the meat may be contaminated has reduced the popularity of traditional animal meat. I think there is potential for an upside as demand for plant-based meat fades and potentially demand for plant-based meat increases.
Given the potential for the market to shift in favor of alternative options, I believe investing in Beyond Meat could be an asymmetrical bet with significant upside potential. However, current market conditions involve high risks, and the company’s struggles suggest that allocating a large portion of your portfolio to it may be financially irresponsible. For now, this could be a small asymmetrical movement in your portfolio. I think it’s a strong purchase.
