Beyond Meat: Beyond Believable

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About: Beyond Meat, Inc. (BYND), Includes: KHC, MDLZ
by: Rogier van Vlissingen
Summary

BYND surges post its first quarterly results.

Stock price qualifies BYND as a cult stock.

Does the market value reflect a craze or a serious trend?

The first of an avalanche of meat alternatives, when alternative proteins are a non-problem. Oversupply of proteins is the problem.

The food industry has gotten wind of the plant-based trend, which is catching on strongly in the US now, after growing by leaps and bounds in Israel and the UK for many years. Apparently, neither investors, nor most managements know anything about plant-based nutrition and there is a strong tendency to some out with transitional products - designed by omnivores trying to imagine how they could ever learn to eat plant-based food. The result is 'ersatz' products: meatless burgers, dairy-free cheese, alternative protein, and so on. The longevity of this phenomenon must be doubted. From a health perspective, most doctors I have met in this area tend to agree that the easiest thing is not to do any of that transitional stuff, but just switch to a healthy, whole foods, plant-based diet instantly. It confirms my experience: I tried the gradual route in 2007 and promptly failed, but in 2015 I got serious, got myself some better information and switched, never to look back. Below, I overlook the hysterical spike of Beyond Meat (BYND) at the moment, as it has nothing to do with value. I investigate the drivers, the fluff and the solid trends underlying this whole phenomenon. What is left is a dubious investment proposition without a clear path to profitability amid a sea of similar new entries, that should be approached with skepticism and caution.

Since the first quarterly results of Beyond Meat, Bill Maurer already delivered a sober assessment of the financials, titled "Beyond Meat Now Beyond Ridiculous". The title of his article says it all, and facts are facts. Sane financial analysis would unequivocally say the current price levels for this stock cannot be understood. The key thought in Bill Maurer's article might be this:

That's a price to sales ratio of more than 35 times compared to names like Kraft Heinz (KHC) or Mondelez (MDLZ) that go for less than 4 times sales each (Kraft less than 1.5 even).

But that's too much common sense for a cult phenomenon like this, and from a trading standpoint we should always respect the seemingly unlimited ability in the markets of stories getting ahead of the facts. Timing the adjustments in market value is one of the hardest things to do when a stock becomes totally divorced from any underlying, quantifiable realities. Look at a scenario like Tesla (TSLA) for reference. Keep in mind that lots of money has been lost shorting Tesla.

The quicksand of the vegan trend

Beyond Meat benefits from the most evident trend in the food and restaurant business: the current vegan food craze. The question is, is it a craze or a serious trend? I suggest that it is a serious trend, with overtones of craze. While vegetarianism is older than veganism, it has been overtaken by veganism. The vegetarian hardcore consists of those groups who practice it for religious reasons, such as Hindus, Seventh-Day Adventists and other religious groups. The vegan trend is overwhelmingly driven by concern for animal welfare and by environmental concern. The latter might be the only really rational element that is easily quantifiable.

Nutrition from animal sources is simply inefficient, for we are inserting middlemen in our food - the livestock who must digest vast amounts of food (grass, corn, etc.), and pollute land, water and air, for us to get our nutrition from animal sources, instead of directly from plants. Global organizations are getting involved in this issue and the United Nations calls meat our most urgent problem for a reason. Nutrition from animal sources generally uses an order of magnitude more resources in the dimensions of water, land and air, compared to plant-based alternatives. That much is fact, and it is the hard foundation that supports the trend towards plant-based nutrition. But that does not prove that Beyond Meat has anything special to offer.

The other strong support of the vegan trend is the growing popularity of veganism as you can find in the YouTube videos of Gary Yourovsky and others, mostly driven by animal welfare concerns. Various celebrities are also advocating a vegan lifestyle.

Last week, I spent a half a day at the recent Plant-based World Conference and Expo which was at the Javits Center on Friday and Saturday, June 7 & 8. This event was full of meat and cheese and dairy alternatives, too many to mention, as well as all kinds of other plant-based foods. Anyone could check the exhibitor list. The overwhelming majority are still private, but deals were clearly being done, and the field of competition for Beyond Meat is not going to be confined to Impossible Foods, which is still pre-IPO. Most of the food in the show would personally not interest me in the least, and I sampled it only for research purposes - all transitional stuff. Some of it was quite good, if you think the problem is how to transition from SAD - the Standard American Diet - to a vegan diet. The truth is, the majority of these "plant-based" foods are conceived and developed by people who do not know plant-based nutrition for a customer base who they don't understand very well, and who, moreover, also is generally uneducated about plant-based nutrition.

The "real" foundation in Plant-based Nutrition and Lifestyle Medicine

Above, I mentioned two trend lines, animal welfare and environmental protection. Both tend to be issues laden with emotions, but the environmental issues have strong and clear economic importance over and above the emotional appeal. Nevertheless, I don't think those trends have real staying power in terms of keeping to a diet. I see too many people who were vegan for a week or a month or six months and then fall back to their old habits, and from my observation, the reason is simple. They do not know anything about plant-based nutrition, or plant-based cooking. Merely deciding not to eat certain things (i.e. animal products), does not a healthy diet make. Plant-based nutrition is simple enough, but you have to know the basics, and you need to relearn some food preparation and cooking skills. The one objective fact in favor of plant-based burgers is that some consumers notice that they are more satisfying (because they have more fiber). But once you go vegan, you might as well get healthy at the same time, and learn to cook plant-based in general instead of making the same old dishes with ersatz meat and cheese. Therein lies the difference between success and failure. Increasingly however, doctors are getting on board with making diet a priority and there is huge growth in the number of doctors with plant-based credentials in one form or another, who recommend a proper whole foods, plant-based diet.

Here in the Bronx, at Montefiore Hospital, there is something called the Cardiac Wellness Center founded by cardiologist Dr. Robert Ostfeld and every patient is taught a whole foods, plant-based diet as part of their intake procedure. Ostfeld also teaches plant-based nutrition at Albert Einstein College of Medicine. I have heard him say many times to rooms full of people that patients come to him with regularity for a 2-week follow-up with tears in their eyes from gratitude over their improvements, and he will add that he never gets that type of reaction for a statin prescription. There is presently a bill on Governor Cuomo's desk requiring all state hospitals to always offer a whole foods, plant-based option at every meal. New York City recently started Meatless Mondays in schools. California is even further ahead with starting to adopt plant-based diets for hospitals, schools and prisons. Various medical organizations are also endorsing a whole foods, plant-based diet, from AMA, to ACC (Cardiologists) to ACE (Endocrinologists) and ADA (American Diabetes Association). With more and more doctors becoming certified in the plant-based diet, patients are looking for suitable foods, and restaurants, and that part is getting off the ground only ever so slowly.

Part of the coming healthcare revolution

According to the American College of Lifestyle Medicine, 85-90% of healthcare spending is on pills and procedures that will not work for illnesses that are predominantely caused by diet and can be prevented and often reversed with a whole foods, plant-based diet. Medical treatments amount to mopping the floor without turning off the faucet that caused the leak in the first place.

To put it differently, allopathic medicine, with its focus on treating illness (symptom suppression), is failing to treat the cause and the specialists are standing around blindfolded and unable to see the elephant in the room. This is how by their late sixties, people generally end up on multiple medications, without ever getting healthy - retirement for most people means becoming permanent patients, worrying about drug side effects and interactions. We are taught that this is normal, and the pharmaceutical industry thrives on drugs "you will have to take for the rest of your life". The truth is, you only need them until you find out that diet is the cause. Currently, the life story of Brooklyn Borough President Eric Adams is the case in point. Hospitalized in 2016 due to losing his eyesight in one eye and an A1C of 17.1, he declined standard medical intervention and instead turned to Dr. Caldwell Esselstyn, Jr. at the Cleveland Clinic, who put him on a whole foods, plant-based diet, and in three weeks he had his eyesight back and in three months his A1C was back to normal. Not good for the sales of Metformin and Insulin ... then in 2018, his 80-year old mother did the same and shed all of her meds including insulin within three months.

As I have been exploring for some time, this trend is manifesting in things like all the major food companies having sold out of the feedlot business, and investing in meat alternatives. Kraft-Heinz and Mondelez are dying a slow death until they figure out a way to be relevant in the plant-based world, which is increasingly rejecting processed food for health reasons. Haven Healthcare seems to be determined to avoid the dietary angle and is doomed to relative irrelevancy in the long-term reform of healthcare, where lifestyle and nutrition will be the primary determinants of health. They may never get it and I won't believe they are serious until I see Warren Buffett sell off Coke and Kraft-Heniz; the point is one of the three partners, Berkshire, has major conflicts that would seem to prevent real change.

Not a health food

The main reason to be skeptical of Beyond Meat is that it is based on faulty nutrition concepts and it is not a health food - we do not need protein foods. Our primary problem is too much protein in the diet, not too little - spinach is 50% protein, and brown rice or potatoes are whole foods that still supply 9% protein, and our protein needs are no more than 10% of our caloric intake and vegans average 70% over the recommended levels. Most Americans get 20-30% of calories from protein, which is the direct cause of our spiraling healthcare costs. Impossible Foods is not a health food either, though it seems that Beyond Meat has less saturated fat than Impossible, which is based on coconut oil. In short, not only is there an avalanche of competition coming to market, all of these foods are ΅transition foods", which will fall out of favor when people realize that for the same money they could eat a healthy vegan diet (i.e. a whole foods, plant-based diet). There is no point in being vegan and becoming just as sick as your omnivore neighbors. For the same money, you could be healthy. Besides, once you learn proper plant-based cooking, the variety is endless. I was always the cook in the house, but I have never had more fun with food than since going on a plant-based diet four years ago. I know I saw some sure winners at the plant-based food show. Investors were shopping.

In the current scenario, the market is being flooded with transition foods, 90% of which are "vegan junk," and a small minority could be part of a healthy vegan diet. The "vegan junk" is likely to be a passing phase.

Conclusion

Beyond Meat is a maladaptive solution to a non-existent problem - the perceived need for protein, which is contradicted by modern nutritional science. The hysterical valuation is thus pure hype, and not justified for a transitional product, but at the same time this is tampered by the fact that the transition to a healthier diet will probably take another twenty years. Therefore, assuming the company can get to profitability, it may have some staying power, but not at these hysterical levels post-IPO. The path to profitability remains unclear. As noted, there is some underlying reality that supports it, the environmental angle being the most solid and quantifiable.

The company plays into a solid trend, but longer-term the product is not the solution it appears to be and interest is likely to wane eventually. To reduce it to simple terms, this company is part of a craze, and only weakly supported by an underlying trend. It may be a trading opportunity for those with an appetite for volatility, although it is unlikely to be a viable long-term investment. The short term surfing on the hype is already taking its toll as the first correction is setting in.

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.