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Andrew Willis: Meat shortages are the latest piece of news dominating headlines in this COVID pandemic, which has investors making a beeline for the no-meat protein stocks.
Beyond Meat (BYND)’s stock surged this week following its earnings announcement that revealed a 141% year-over-year sales growth. Despite that impressive statistic, there are fundamental issues that we believe still make it significantly overvalued. There was a high probability that quarterly sales would have fallen in the food service segment due to social distancing measures, and sales did fall by 15% domestically and 40% internationally. But we don’t know what differences will happen to demand beyond this quarter, and there were issues around product price and popularity that pre-date the pandemic.
Sector analyst Rebecca Scheuneman notes that food-service sales represented half of 2019 sales (and two thirds of that was from hard-hit dine-in formats). She expects social distancing mandates will continue to slow revenue growth until normal restaurant traffic resumes.
When the restaurant side of business begins to recover, it will be interesting to see if the trial with wide-moat McDonalds in Ontario for a ‘P’LT or ‘protein lettuce and tomato’ sandwich worked out in Beyond Meat’s favour. Until we see more signs of plants taking over the grill, and at the current price point, investors might want to remain on the sidelines for this stock.
For Morningstar, I’m Andrew Willis.
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