Many will ask “will Beyond Meat make money,” because the meatless protein maker is the hottest initial public offering (IPO) of the year.
In fact, Beyond Meat (NASDAQ: BYND) shares were trading at $169.89 on 19 June 2019. Meanwhile, Beyond Meat had a market cap of $10.241 billion on the same day.
In contrast shares of Uber (NYSE: UBER); which is supposedly the tech superstar of the century, were trading at $43.86 on the same day. However, Uber had a market capitalization of $74.376 billion on 19 June 2019.
Beyond Meat is Losing Money
Beyond Meat and Uber have a lot in common; however, both companies are losing money.
For instance, Beyond Meat reported an operating loss of -$5.3 million and a net loss of $-6.65 million on 30 March 2019. Conversely, Beyond Meat had a gross profit of $10.77 million on revenues of $40.21 million at the end of March. Yet Beyond Meat recorded a negative free cash flow of -$17.77 million and an operating free cash flow of -$13.29 million on 30 March 2019.
In comparison Uber recorded an operating “cash flow: of -$722 million, and a negative free cash flow of -$811 million. Uber achieved an operating loss of -$1.034 billion and a net loss of -$1.012 billion. On the other hand, Uber reports a gross profit of $1.418 billion on revenues of $3.099 billion for the last quarter.
Thus, you can argue Mr. Market is underpricing Uber making it a potential value investment. Notably, Statista estimates Uber had 95 million monthly users worldwide in 2019.
What is Driving Beyond Meat’s High Share Price?
Observers will ask what is driving Beyond Meat’s share price so high while keeping Uber low. My guess is that people like Beyond Meat but dislike or hate Uber.
For instance, Medium writer Michael K. Spencer admits, “I love the Beyond Meat story.” Spencer loves Beyond Meat because he admires the company’s ethics. Moreover, Spencer lists Beyond Meat as an example of “Millennial Ethics in the markets.”
In contrast, many people despise Uber because of the unbelievable number of scandals at that company. Here is a partial list of Uber scandals I compiled in 2017 before founder and sociopath Travis Kalanick got the boot.
Classic value investors will say Beyond Meat is sexy, friendly, and fashionable but Uber is not. Yet, value investors will point out that 95 million people pay cash to use Uber’s service every month. Conversely, Beyond Meat’s products are new and only in a few markets.
Can Beyond Meat Make Money?
Essentially, Beyond Meat manufactures several plant-based alternatives to popular American meat products. Current brands include Beyond Burger, Beyond Sausage, Beyond Beef Crumbles, etc.
Importantly, America’s largest standalone grocer Kroger (NYSE: KR) carries Beyond Meat products, the Beyond Meat website claims. However, Beyond Meat is not yet on the shelves of America’s largest grocer Walmart (NYSE: WMT).
To clarify, Kroger is America’s largest operator of supermarkets with 10.2% of the 2017 US grocery market, UBS estimates. Oddly, America’s largest seller of groceries is Walmart which had 21.4% of the market in 2017.
Unfortunately, most of America’s largest grocers; including Albertson’s (5.2%), Costco (NASDAQ: COST) (4.2%), CVS Health (NYSE: CVS) (3.9%), Target (NYSE: TGT) (2.7%), and Walgreens (NASDAQ: WBA) (2.4%), are absent from the list of stores that carry Beyond Meat products. This list could be in complete because Target’s website sells Beyond Burgers.
Consequently, Beyond Meat is at the mercy of a few big retailers that can throw it out of their stores.
Is Kroger Beyond Meat’s most dangerous Competitor?
Moreover, one of those retailers; Kroger, could become Beyond Meat’s biggest and most dangerous competitor.
n fact, Kroger claims it sold $2.3 billion worth of its Simple Truth natural and organic private label brand as of Fall 2018, Forbes writer Neil Stern notes. In addition, Kroger’s private label sales were growing by 30% in 2018.
What will happen to Beyond Meat if Kroger puts its own Simple Truth brand plant-based burgers and sausage on the shelves next to Beyond products at a lower price? My guess is Beyond’s sales will plummet. Since Kroger already offers over 1,400 Simple Truth products, Simple Truth burgers are inevitable.
Can Beyond Meat Compete with Kroger?
Kroger’s resources exceed those at Beyond Meat. In fact, Kroger recorded revenues of $28.091 billion and a gross profit of $21.903 billion for the quarter ending on 2 February 2019.
Impressively Kroger, owns 24 supermarket chains in 35 US states, 37 food manufacturing facilities, 17 dairies, 2,270 pharmacies, 1,537 supermarket fuel centers, and over 2,764 supermarkets and supercenters in the USA. Other Kroger assets include grocery deliveries from up to 1,372 supermarkets in 45 markets, the Vitacost discount vitamin and supplements retailer, and The Home Chef.
Finally, Kroger owns 6% of the Ocado Group plc (LSE: OCDO). Ocado is a British company with robotic fulfillment systems that could be more advanced than Amazon’s. Ocado and Kroger plan to build 20 robotic fulfillment centers for same-day grocery delivery across the United States.
Are Restaurants Beyond Meat’s Future?
Given Kroger’s recent history, Beyond Meat’s managers are smart to seek to alternative outlets like fast food operators.
Currently, Beyond Meat claims its products are on the menus at A&W, Carl’s Jr., Del Taco, TGI Friday’s, BurgerFi, Bareburger and Veggiegrill. The biggest of these chains is Carl’s Jr. Carl’s and its sister chain Hardees have over 3,800 franchised locations in 44 US states and 43 countries.
Unfortunately, Beyond Meat’s site does not say whether the other chains owned by Carl’s parent CKE Restaurants will offer Beyond Meat products. In addition, to Carl’s and Hardee’s, CKE owns Green Burrito and Red Burrito.
Beyond Meat at Tim Horton’s
However, the other chains Beyond Meat works with are much smaller. A&W only has 625 restaurants in the US and 340 international locations for instance.
Meanwhile, Del Taco operates 580 locations in 14 states and claims to be expanding aggressively. Consequently, Beyond Meat could have access to up to 5,005 fast food locations in the United States and other countries.
Plus, Beyond Sausage breakfast patties are now available at 4,000 Tim Horton’s coffee shops in Canada, a press release claims. If you’re unfamiliar with it it; Tim Horton’s is a Canadian institution that sells great coffee and donuts.
Notably, Tim Horton’s and America’s second-largest fast-food brand, Burger King have the same parent company; Restaurant Brands International. However, news articles do not say if Beyond Meat is coming to Burger King. Moreover, there are 416 TGI Friday’s sit-down restaurant locations in the United States.
Success at one or more of these chains could be the key to Beyond Meat’s future. In particular, strong sales of Beyond Meat at A&W, Tim Horton’s or Del Taco could convince McDonald’s (NYSE: MCD) or Yum! Brands (NYSE: YUM); owner of Pizza Hut and Taco Bell, to offer Beyond Meat products.
Can Beyond Meat Succeed?
I think there could be a huge market for plant-based meat alternatives if they meet certain conditions.
First, the price of Beyond Meat products will have to be significantly lower than real meat. Beyond Meat is not meeting that criteria, on 14 June 2019 Target was selling two Beyond Burger patties for $5.99 or $3 each. My take is Beyond Meat will not reach a mass market until it sells patties for 50₵ or $1.00 each.
Really low prices will enable Beyond Meat to get on the shelves of growing discounters like Aldi, Lidl, Dollar Tree (NASDAQ: DLTR), Dollar General (NYSE: DG), and Costco. Interestingly, Aldi could be America’s fastest-growing grocer with over 1,800 stores and plans to open 400 more.
In addition, low prices could help Beyond Meat get into drugstores which are becoming a major player in the grocery business. Low prices are also the key to success on Amazon (NASDQAQ: AMZN) America’s most popular retailer in the 21st Century.
Second, meatless products will have to test better than real meat. Thus, making products that do not taste like meat could be the key to Beyond Meat’s success. I think the public will be more likely to buy meatless burgers; or sausages, that taste better than real meat.
Is India Beyond Meat’s Future?
If Beyond Meat meets these conditions, its products could have a bright future. Moreover, there is a huge market Beyond Meat could tap: India.
Census data shows 79.8% of the population or around 798 million people are Hindus, Al Jazeera reports. Most Hindus regard vegetarianism as a tenet of their faith and even treat cows as sacred. Thus, India could be Beyond Meat’s biggest profit center.
Particularly, if India’s middle class develops a taste for American or European style fast food but keeps its faith. Maryam Aslany of King’s College, London estimates that 28% of Indians are middle class, LiveMint reports. Given that figure and India’s population of 1.37 billion, I estimate the size of the Indian middle class at 384 million.
The Indian middle class could be the key to huge profits for Beyond Meat, and fast-food brands that sell its products. Consequently, Beyond Meat could find a huge consumer market on the subcontinent.
Stay Away from Beyond Meat Stock
Even though, Beyond Meat’s potential is vast, Mr. Market grossly overprices its stock. Investors need to stay away from Beyond Meat (NASDAQ: BNYD) until collapses to a realistic price. Note: I think $10 a share is a realistic price for Beyond Meat given its minuscule revenues.
Buying Uber (NYSE: UBER) which makes no money but is already tapping a huge international market is a smarter move for value investors. However, Beyond Meat lacks Uber’s history of sleaze.
The Beyond Meat story proves that investing only for ethics is a good way to lose money in the short-term. Finally, I think a stock have a realistic price to be a true ethical investment. Under those criteria, Beyond Meat is far from an ethical investment.