Beyond Meat: Cash-Rich And Growing Net Income

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About: Beyond Meat (BYND), Includes: TSN
by: Bilbao Asset Management
Summary

Meat offers new and revolutionary plant-based meats. With meat that tastes like animal-based meat products, Beyond Meat is also able to offer the nutritional benefits of eating plant-based meat products.

The company’s financial situation is quite solid with a small amount of debt and cash comprising of 44% of the total amount of assets.

Reporting a 101% y/y increase in revenues to approximately $33 million, the company’s product seems quite unique.

The company expects to use the proceeds from the IPO to finance manufacturing facilities, increase its R&D, sales and marketing capabilities and perhaps acquire other businesses.

If the company continues delivering revenue growth and the upward trend in the net income doesn’t stop, BYND’s stock price could increase in the near future.

With a massive increase in revenues in 2017, equal to 101% y/y, Beyond Meat (BYND) shows a financial profile that will interest many investors. The company’s net income is not positive, but losses have been decreasing at high pace in 2017 and 2018. If this upward trend at the bottom line continues, the stock price of Beyond Meat should increase as growth investors buy. Regarding the financial situation, investors should appreciate that cash comprises of 44% of the total amount of assets. In addition, the company seems well placed to pursue business growth since, as of today, the financial debt is quite small.

Source: S-1 Form

Beyond Meat hired some of the biggest investment banks in Wall Street, which will be appreciated by the market. It will help the company sell shares and obtain visibility. The names of the underwriters are shown in the image below:

Source: S-1 Form

Business

Founded in 2009 and headquartered in Los Angeles, California, Beyond Meat offers new and revolutionary plant-based meats. With meat that tastes like animal-based meat products, Beyond Meat is also able to offer the nutritional benefits of eating plant-based meat products. The image below shows what the “meat” developed by BYND looks like:

Source: Company’s Website

The company does not offer only burgers, but also pork, chicken, and beef. The images below were taken from the company’s website:

Source: Company’s Website - Products

Targeting the global meat industry, which seems massive and equal to $1.4 trillion, a 101% revenue increase in 2017 reveals that consumers appreciate the food prepared by BYND.

Source: Company’s Website - Distribution

With 28,000 points of distribution primarily in the United States and other countries and A&W Canada and TGI Fridays collaborating, the company’s distribution network seems to be already very large. It should help increase sales at a fast pace in the near future.

Source: A&W Canada

The Number Of Employees Is Increasing At A High Pace

In terms of employees, BYND no more looks like a start-up. The company has 355 full-time employees, out of which 130 are contract workers. Taking into account that BYND commenced operations in 2009, business growth seems large as the company has hired on the average 39 employees per year. The lines below provide further details on this matter:

Source: S-1 Form

90% Increase In The Amount Of Assets In 2017

The balance sheet shows what financial analysts should expect from a fast-growing company. There is, first of all, a massive increase in the amount of cash in hand, from $16.9 million in 2016, it increased to $39.03 million in 2017. In addition, as of September 29, 2018, cash comprised of 44% of the total amount of assets. Furthermore, investors should appreciate the 90% increase in the amount of assets in 2017, from $34.9 million in 2016 to $66 million in 2017. As of September 29, 2018, the total amount of assets was equal to $112 million. The company has $28 million in plant and equipment, and the company notes in its prospectus that it leases its offices and factories. The image below provides further details on the list of assets:

Source: S-1 Form

The liabilities should not worry investors. As of September 29, 2018, the company released a total amount of liabilities of $30.9 million with 19 million in long term debt and $25 million in preferred stock. In September, with cash equal to $49 million, the company can pay its debts. The image below provides further details on this matter:

Source: S-1 Form

The contractual obligations released in the prospectus don’t represent a serious issue. The total amount of contractual obligations equals $11.6 million, which is below the cash in hand in September 2018. With this in mind, the company’s financial risk does not seem elevated. The image below provides further details on this matter:

Source: S-1 Form

101% y/y Revenue Increase, But Negative CFO

Reporting a 101% y/y increase in revenues to approximately $33 million, the company’s product seems quite unique. The growth seems to continue in 2018 as the company reported revenues of $56 million for the nine months ended September 29, 2018. The image below provides further details:

Source: S-1 Form

With that, it is interesting that gross profit also increased in 2018. The company reported gross profit loss of -$2.19 million and positive gross profit of $9.7 million in the nine months ended September 29, 2018. The upward trend in the gross profit margin is also quite beneficial. The company reported gross profit margin of -39% and -6.7% in 2016 and 2017 respectively. BYND explains this feature by saying that the company sold more fresh products, which are more expensive than the company's frozen food. The image below provides further details on this matter:

Source: S-1 Form

Following a similar trend, BYND reported net income losses of $30 million in 2017 and losses of -$22 million in the nine months ended September 29, 2018. Value investors should appreciate this upward trend in the net income.

On the contrary, the CFO is negative and declined in the nine months ended September 29, 2018 by 25%. DCF modelers will not appreciate this feature. The image below provides further details on this matter:

Source: S-1 Form

Use of Proceeds

The company expects to use the proceeds from the IPO to finance manufacturing facilities, increase its R&D, sales and marketing capabilities and perhaps acquire other businesses. It is beneficial that the company will not use the money to pay preferred stockholders, or pay financial debt. Investors will appreciate this feature. The lines below provide further details on this matter:

Source: S-1 Form

List of Shareholders And Conversion of Preferred Stock

The assessment of shareholders reveals that BYND has received money from very different institutional investors. It is very beneficial. It shows that there is a demand for the stock. The fact that none of the shareholders owns more than 50% stake is another great feature for minority shareholders. Keep in mind that the Board of Directors is expected to be independent. The image below provides further details on this matter:

Source: S-1 Form

Additionally, it seems very interesting that Tyson Foods (TSN) decided to acquire 6.6% stake in the company. Tyson is a big player in the food industry and knows how to recognize emerging businesses in the sector. It tells a lot about BYND and its products. In addition, certain investors will expect Tyson Foods to offer further financing to BYND if it needs additional cash in the future. It may be a very beneficial feature for minority shareholders.

Like many companies executing an IPO, Beyond Meat expects to convert all its preferred stock into common shares. This is beneficial for two reasons. Firstly, the company will reduce its total amount of debt. The preferred stock, which is worth $25 million, was registered as a debt. In addition, it is beneficial since shareholders are not expected to suffer from stock dilution from this convertible securities. The lines below provide further details on this matter:

Source: S-1 Form

Conclusion

Reporting a 101% y/y increase in revenues in 2017 and negative but growing net income, BYND seems promising. Value investors may not appreciate the company as the CFO is still negative and the company still reports losses. With that, growth investors should follow the stock. If the company continues delivering revenue growth and the upward trend in the net income doesn’t stop, BYND’s stock price could increase in the near future.

On the top of it, the company’s financial situation is quite solid with a small amount of debt and cash comprising of 44% of the total amount of assets. It does not only mean that the financial risk is non-existent, but also that BYND is well positioned to continue its business growth.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.