Beyond Meat: Beyond Overvalued

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About: Beyond Meat, Inc. (BYND)
by: Sean Chandler
Summary

Every time the stock rises about 1.6% from its current levels, its price-to-sales multiple increases by one. It is currently 64.

Beyond Meat's Beyond Burger is high in fat and calories, and the company doesn't seem to want you to know.

I've tried the food, and it's good, but the competition is just as good, if not better.

Beyond Meat is a food company, not a technology company.

Introduction

Talk about great timing. Not only did Beyond Meat (BYND) IPO at a time where meatless meat is more than just being a health-conscious choice, it IPO'd at a time where you could get multi-billion dollar valuations without actually making a profit. Yes, even if you're a transportation, real estate, or food business. Beyond Meat closed Thursday at $92 per share, more than four times what their proposed maximum offering of $21 per share was in their S-1. Beyond Meat is one of the most successful IPOs of all time.

I believe in Beyond Meat, as well as the dozen other companies attempting to change how we consume meat. If I can't tell the difference, I'm all for it. I was interested in investing in Beyond Meat for a while. I tried the sausage from home as well as the burger from home and restaurants to further rationalize myself into investing into a $1.5B food company with less than $90M in 2018 revenues. However, at $90 per share or $5.5B, I'm a little more than skeptical. I'm laughing at myself for missing the boat, at how much money was left on the table and how little investors seem to understand valuation.

Every 1.6% stock price increase is +1 to its price-to-sales ratio

Beyond Meat is trading at 64 times last year's sales, and for every 1.6% it rises from its current valuation, another point is added to that multiple. I'm sure most of you are familiar with PS ratio, but just in case, that's the company's valuation divided by its trailing twelve months of revenue. I've put every food corporation that I could think of in the chart below, and not a single one trades at a price-to-sales ratio of more than 2. Tyson (NYSE:TSN), the most meat-centric company listed, isn't even at 1. Tyson's revenues for 2018 were $40B, and it has a valuation of approximately $25B.

I'm not sure if investors forgot, but Beyond Meat is a food company. Even if it doubled its revenues for five straight years, it would still have a P/S ratio of greater than 2. It took Tyson more than 20 years as a publicly-traded company to reach a $5B valuation. Food is not easily scalable, it is low margin and incredibly competitive.

Chart Data by YCharts

More detailed nutrition comparison with beef

There have been some articles that go into detail of the nutrition here on Seeking Alpha, such as a self-claimed nutritionist Dane Bowler calling it "bad for the heart". I'm not going to go there, as I'm no nutritionist. However, Dane didn't go into much detail as I would have hoped.

In Beyond Meat's defense, one issue I had with Dane's comparison between the Beyond Burger and a real burger was that he compared 4oz of cooked beef to 4oz of uncooked Beyond Burger. When cooking, juices and oil (calories) seep out, and even a McDonald's (NYSE:MCD) Quarter Pounder patty loses more than 25% of its mass when being grilled. He also used 90% lean ground beef, which is much leaner than what you would find at a typical restaurant or fast food chain.

Nonetheless, Beyond Meat is by no means low fat or low in calories. Below, I've created a chart on how it stacks up with various different kinds of ground beef using information from FatSecret, a website that pulls data from the USDA. Based on the information provided from Beyond Meat, 20 grams of fat out of a 114 gram serving (4oz) implies a lean percentage of (82.5/17.5); note that the Beyond Burger also contains carbohydrates and fiber, which is not listed in my chart. I believe most fast food chains use 80% lean, but since some beef patties can be prepared a variety of different ways (adding flour, egg, etc.), it's hard to tell for sure.

4oz Patty Calories Calories from fat Total Fat Saturated Fat Protein
Ground Beef (90% lean) 200 100 11g 4.5g 23g
Ground Beef (85% lean) 240 150 17g 7g 21g
Beyond Meat Beyond Burger 270 170 20g 5g 20g
Ground Beef (80% lean) 280 200 22g 9g 19g
Ground Beef (75% lean) 330 250 28g 11g 18g

Beyond Meat doesn't seem proud about its nutrition facts

Even though I've eaten Beyond Burgers prepared from home and fast food chains, I never bothered looking at the nutrition facts until I saw a number of articles mention how "bad" it is for you. While it still didn't bother me, I was interested in finding out how Beyond Meat discloses this information because most vegetarian companies use nutrition as a selling point. Beyond Meat does not; in fact, I even had trouble finding the nutritional information on their own website.

I also learned that they recently changed the website's nutrition label, which did not include "Total Fat" on it up until recently. That's usually an important part of a label, since there are more than twice the amount of calories in fat than sugar or protein (9 versus 4).

To see how Beyond Meat discloses its nutrition facts, I first went to Google and searched: 'Beyondmeat.com Nutrition Facts', which yielded the following result:

Beyond Meat Nutrition Facts As you can see, the nutrition facts are in the description. However, when I clicked the link, I could not immediately find it even when searching (command + f) for it. It wasn't until I realized that the arrow next to "Product Detail" was a dropdown menu that I was revealed the nutrition facts. Silly me.Beyond Meat Dropdown Menu What was most interesting is that when I searched these results several weeks ago, I could not find the total fat listed on the website's nutrition label. Instead, it only listed saturated fat. If you look back up at the table above, it places well in saturated fat even against a very lean burger. Given that there are 9 calories per gram in fat and that there's a whopping 170 calories from fat listed in the nutrition label, there must be about 19 grams of total fat - making this a fairly fatty burger. No wonder they don't want you to know. The old label can be verified by visiting an archived version of the website:

Beyond Meat Nutrition Facts Archive Here is the updated label as seen today:

On today's website, as seen in the label above, it lists the total fat as 20 grams. Fat has about 9 calories per gram, which would equate to 180 calories from fat, not 170 as the label suggests. Maybe I'm missing something, and I can admit that I do not entirely understand the rules behind nutrition labels. To remain competitive, companies push the rules to the edge, such as a can of cooking oil spray that has seemingly 0 total calories despite having 145 grams of oil in it (1,300 calories).

Try before you buy

Yesterday, I read an article by Seeking Alpha contributor Anh Huang who wrote that Beyond Meat could reach a valuation of $21B in five years based on 100% compounded revenue growth and a 30x multiple on EBIT. That would be a 14x ROI from its IPO price of $25 on May 6th, 2019. What I found interesting was that he didn't seem to have tried the burger and instead quoted a review by Consumer Reports.

I was so interested in Beyond Meat that I paid $9 for four sausages and $6 for two patties that I grilled at home. I've also tried the Beyond Famous Burger from fast-food chain Carl's Junior.

The sausage

I tried the sausage last year and at $9 for four sausages, I was quite shocked by the price. With the hope of getting the purest taste of its attempt to replace meat, I went with the Brat Original flavor over Spicy Italian. It wasn't my favorite, and I'll leave it at that.

The burger

At $6 for two patties, this is by no means affordable. Unlike the sausage, this is very unique. In its raw form, it looks very similar to ground beef in person, but when cooked doesn't capture the same color as a normal burger. That doesn't bother me, though.

Interestingly, I didn't bother looking at the nutrition label, but noticed the patty was quite oily. On the grill, the oil fueled a lasting flame under the patty, which can be seen in the image below. It was at that point I realized that these probably aren't that healthy, but that wasn't a concern for me. In fact, I never looked at the nutrition label and compared it to a normal burger until I read articles claiming that they were unhealthy. I just assumed they weren't bad.

In terms of taste, it was great, even from home. A put picture of my simple burger made from home below; Gordon Ramsey would be proud. Masked by cheese and sauce, the Beyond Burger from Carl's Junior is difficult to differentiate from a traditional burger. At home without cheese and excessive sauce, it is distinguishable but still quite satisfying. If I wasn't eating it alongside real burgers, I probably wouldn't know.

Impossible Burgers taste better to me and are healthier

I find it a bit suspicious that Beyond Meat makes it difficult to find nutrition labels and previously hid the total fat in its burger. From a competitive standpoint, this is not good. All it takes is for a competitor to say their alternative is healthier and taste better. Not surprisingly, such a competitor does exist. The Impossible Burger is much healthier with 50 lesser calories and is my preferred choice; in Beyond Meat's defense, I've only tried the Impossible Burger at premium price points (Umami Burger and Disneyland Resort).

Conclusion

I want Beyond Meat to succeed, but I don't feel like investors are being very realistic. The markets are near an all-time high and seem to resist ongoing tensions between China and Iran. This gives me reason to believe that investors are just looking for places to put their money and a large amount of interest in a small company drives share prices. If it weren't for a lock-in period, I think the stock price would be more reasonable as some investors would be more than happy to cash in on a 4X ROI after just a few days.

I don't know many companies with a 64 price-to-sales multiple, especially one that is not technology-based. For Beyond Meat to double its output, it would need double the supplies and twice the manufacturing capacity. This can only be sustainable for so long especially with so much competition.

Meatless meat restaurants and options are becoming abundant, and Tyson announced its efforts to enter this market as well. I don't expect Tyson to carry the same branding power, but it knows a thing or two about food production and distribution. While it doesn't bother me, I think people will eventually find Beyond Burgers to be unhealthy compared to good alternatives like Impossible Foods.

A share price of over $90 is beyond overvalued. Given its run up and early stages of trading, the expensive hard-to-borrow fees and high premiums to purchase options make this a bit risky to open a short position. I will simply be avoiding this one.

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.