Plant-based meat.

Surprisingly, it is not something new. The idea of meat analogues has existed for a long time. Tofu (bean curd), peas, and mushrooms are existing animal protein substitutes. This is especially true for those on a vegetarian or vegan diet.

The scene becomes exciting when we decide to mimic the actual meat flavour and texture profile using plants.

As a food technologist by training myself, I have been following the meat analogue industry for quite some time. One of the key reasons this industry excites me is its prospect of tackling food scarcity. Food scarcity is an impending timebomb that will hit mankind in a matter of time. 

Luckily, there are many companies out there that are creating a potential and sustainable solution. One of them is listed on the NASDAQ exchange. It is Beyond Meat Inc (NASDAQ: BYND)

The Technology and Approach

Plant-based proteins are easily available. But making plants taste and feel like meat is not as easy as it seems. To do this, we need to understand a bit of food science and technology.

Protein is one of the basic nutrients that our body needs to grow. For the most majority of the human race, our protein intake is animal-derived. It can be chicken meat, seafood, pork, or even milk and eggs. 

But, there has been a growing population with vegetarian and vegan diets. For strict vegans, they can only rely on plants for their protein intake and requirement. And a huge chunk of plant protein comes from legumes, beans and nuts.

So to make a product that provides protein to taste like meat, companies like Beyond Meat will be tasked with taking whatever plants mankind has been eating and just synthesize it into tasting and feeling as close to meat as possible.

In short, this is what Beyond Meat use makes their products:

1. The protein: Usually consists of pea, mung bean, fava bean and brown rice

2. The fats: Cocoa butter, coconut oil, sunflower oil, canola oil

3. The minerals: Calcium, iron, salt, potassium chloride

4. The flavours and colours: Beetroot, for your plant-based patties to look like meats

5. The binders that glue everything together: Potato starch and methylcellulose (plan fibres)

The stated ingredients are widely available. But the recipe and processing parameters of Beyond Meat is quite a trade secret. So, you might find it difficult to reproduce the same product with the common ingredients.

Flavour-wise, Beyond Meat products, does taste like meat, although not totally identical. However, we know that the company has always been improving their products on a continuous basis with plenty of R&D.

Sales & Marketing

The newer breed of “meat” companies have approached a totally different ballgame in terms of sales and marketing. They partnered up with the top restaurant and fast food chains to promote their products. Suddenly, plant-based meat became sexy and trendy. This is different from the usual boring and tasteless image it once perceives. 

Burger King, White Castle, McDonald’s are one of the few chains and franchises that help spread the meatless trend. The shrewd and hype from social media marketing made Beyond Meat and its competitor Impossible Food news headlines. 

If you are in Singapore, rejoice as you can now do the Impossible or go Beyond. There are plenty of restaurants that are serving Beyond Meat and Impossible Food. You can also grab Beyond Meat’s products from the larger groceries near your place.

Financials 

Being a food technology disruptor, Beyond Meat Inc has been growing at a lightning speed. Its operating revenue grew from USD 16 million to USD 300 million in less than 5 years. Gross profit margin has also improved significantly, from -30% to 36%.

During the early years after its IPO, Beyond Meat also reported increasing net losses. But it’s latest FY 2019 results showed promising break-even trends. Net income level-wise Beyond Meat continues to be loss-making. Nevertheless, the loss has slowly narrowed down.

In their latest Q1’20 quarter report, the company has increased 141% Year-Over-Year to USD 97 Million, with gross profit margin hitting 38%. But keep in mind for rapid growth companies like Beyond Meat, they might increase their sales, marketing, R&D expenses and even CAPEX. This is necessary to invest for better tasting and cutting edge breakthrough products to fund future growth.

Balance Sheet

Beyond Meat has been loss-making since it’s IPO. Hence, the retained loss has driven down the equity section for FY 2016 and 2017. In 2019 the equity portion rose significantly as Beyond Meat Inc. raised capital from shareholders in the form of issuance of common stock. There is also a huge amount of preferred stock converted to common stocks as well.

Cash Flow Statements

Cash flow wise, Beyond Meat Inc. continues to burn through cash as it seeks to expand its presences. Although having an increasing gross profit, profit generated is spent on growing the company. Sales and marketing expenses and R&D are on an increasing trend. Hence the overall operating cash flow has been in increasing negative numbers.

Cash flow on investing activities has also increased over the years. Beyond Meat will be opening its first European manufacturing facility by the end of the year 2020. Personally, I would expect to see the investing cash flow increase=ing more along the years as it aims to grow globally at a rapid pace.

Prospects

The plant-based meat is an exciting space. Vegan and vegetarian diets are no longer boring. The general population’s rising awareness catalyzes the switch from animal to plant protein. 

The key strength for companies like Beyond Meat is to have products that taste like real meat. Their main goal is to convert meat-eaters and the masses to opt for their products. They can still enjoy the pleasure and taste of real meat, and help to solve food scarcity.

Contemporary animal protein requires land for farming and grazing. Not to also forget the number of greenhouse gases that animal farming emits. Plant-based meat is able to tackle future food scarcity and reduce CO2 emission. 

It has yet to reach a tipping point, but personally, at some point in the future, we would be forced to change, whether we like it or not.

Risks & Competition

Beyond Meat Inc is a rapidly growing company. It is disruptive. But it would need to pump in as much cash as possible to be at the front edge of the plant-based protein race. 

This segment is full of competitors. However, Beyond Meat and Impossible Foods are the clear market leaders for beef replacers. But chicken meat, seafood replacers are dominated by other companies. Companies like Supermeat are key players in cell-cultured chicken meat. Seafood wise, we have a  Singaporean startup specializing in cell-based seafood meat

Plenty of companies are addressing food scarcity and alternative proteins from different measures. There are also insect proteins gaining traction in the US and Europe. Mycoprotein, which uses mushroom and fungi, is one of the alternatives as well.

Plant-based protein has also raised the eyebrows of traditional food giant companies to join in the space as well. Tyson Foods, Inc., Beyond Meat’s initial investor, has also ventured into the meatless meat race together with Nestle S.A.. 

Investment Thesis For Beyond Meat

Beyond Meat is still an exciting growth company to look at. Plant-based protein forecast demand will grow rapidly. This will benefit Beyond Meat as it is one of the strongest players in the beef replacer field. 

Its steep valuation could be too hard to swallow. But like most rapid growth companies, it is hard to ascertain a reasonable valuation. Not to forget Beyond Meat is growing its revenue at almost 100% every single year. 

Conversely, focus on the product value, management and capital allocation. These 3 factors will determine its success and failure. Moreover, the company will need a huge amount of capital to continue growing. Hence, there are high chances it will raise capital from the major shareholders or venture capitals. This could surely dilute a retail investor’s shareholding percentage. 

Also, consider the size and strength of your existing portfolio. If you have just started out investing, there are other safer growth companies to kickstart your portfolio. If you have a stable and mature portfolio, looking to invest in Beyond Foods, the investment size should not be a major constituent. 

Verdict

I have been following Beyond Meat even before its IPO. I have seen its share price from day 1 of IPO at $25 a share till its current price of $141 a share. 

Back then, my thoughts on Beyond Meat was that it is still a loss-making company with plenty of ambiguity. Back then, I too had just started investing. I was focusing on yield plays and familiarizing myself with the art of understanding and valuing a business. 

But as my investment journey progresses, I learn to not be too reliant on key ratios. Growth companies usually require industry-specific knowledge and an eye on the future prospect. Financial ratios like P/E ratio are more suitable in analyzing proven companies that have a solid track record.

Beyond Meant’s latest fiscal results shows that it has reached a scale where its operating profitability is more or less stable. It also invests heavily in sales, marketing and R&D too. It can be a small part of your portfolio at the right price, but be ready to hold on to the wild yet exciting ride to infinity and beyond!

LEAVE A REPLY

Please enter your comment!
Please enter your name here