It’s been hard to ignore the excitement surrounding the Beyond Meat IPO. The IPO priced at $25/share on May 1st, closed up 163% on the first day and as of June 12th was up 468% since the IPO. Currently, the stock trades at 24x 2020 sales. For some perspective, Amazon trades at 2.8x 2020 sales.
Investors argue that the “Total Addressable Market (TAM)” is massive. Even if just a small percentage of meat eaters globally decided to switch to meat alternative, revenues currently appear to be almost unlimited, especially in relation to the current size of the company. In our view, the product is just plain better – better than real meat, better for your health, better than all competing burgers and anything that can potentially be conceived of in the future. Proponents of the meat alternative claim they are light years ahead of the competition as the company continues to spend copiously on their research and development, well beyond its current resources.
Certainly, there seems to be room for such a product. However, we must remind everyone that execution matters, competition matters and the future is unknowable. Costs and appetites change. Novelties rarely become staples. Tastes are fickle. There are no guarantees and the stock is behaving as if perfect execution into an always-receptive market is guaranteed. We are reminded of the English proverb: there’s many a slip ‘twixt the cup and the lip – which implies that even when a good outcome or conclusion seems certain, things can still go wrong.
It would be ill-advised to forget the fundamentals. The wholesale food business has very low margins, so even if revenues increase dramatically, profits will tend be much less attractive than many of the other wholesale food businesses, in our opinion. Publicly-traded “protein” companies such as Tyson, trade at much lower multiples – 0.73x Price/Sales.
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