I haven’t heard today’s Industry Focus yet, Texmex, but I’m definitely looking forward to hearing their take on this business. A little while back there was a “contest” for TMF Farm Teamers, such as myself, to pitch company recommendations to the TMF Analyst teams and I decided to go the “Rule Breaker” route, since it’s not yet public, and pitch Beyond Meat. Disclosure: I am a born-and-raised vegetarian who now mostly eats vegan.
Recommendation: Beyond Meat (BYND)
I’m going with a Rule Breaker approach to my Farm Team pitch in recommending plant-based protein company, Beyond Meat. Beyond Meat makes vegan, plant-based meat-substitutes, including Burgers, Sausages, Chicken-style Strips, and Beef-style crumbles. As of this report, however, you cannot invest in Beyond Meat as the company has only just recently filed for its IPO and applied to be traded on the Nasdaq. I am Breaking the Rules, a bit, in pitching a business which is currently private, as of today, Nov. 26, 2018, though this company should be available for public investment within the coming months. The opportunity available to this company, however, is too great for me to ignore and even should this IPO never reach fulfillment, I wanted to try and get this company on The Motley Fool’s, and my fellow Farm Teamers’, watch lists.
The Opportunity of non-animal protein
According to a 2017 report by research firm Global Data, the number of American consumers who identify as vegan had risen 500% since 2014 to 6% of consumers. Additionally, in Germany, 44% of consumers follow a “low-meat diet” which was up from 26% in 2014. According to Fast Company, a recent poll found that 43% of consumers are more likely to try plant-based alternatives than five years ago. The rise in global awareness of the health, ethical, and ecological impacts of animal-protein farming and consumption has led to a boom in vegetarian and vegan food options. Major chain-restaurants such as White Castle and Taco Bell advertise the vegetarian and vegan options their restaurants offer. Established food producers have been making large investments in animal-product-free food companies such as Canada’s Maple Leaf Foods which, in 2017, acquired Massachusetts-based Lightlife Foods and Seattle-based Field Roast Grain Meat Co. for $140 million and $120 million respectively, Daiya Foods was acquired by Japan’s Otsuka Pharmaceutical for $405 million, and Sweet Earth Foods was acquired by Nestlé just to name a few of the largest names. According to Allied Market Research, the shelf-stable segment of the plant-based-meat market is projected to grow over 9.1% annually through to 2025 and the most well-known food producers are making their moves to capture their part of the burgeoning plant-based food market.
Since its founding in 2009 Beyond Meat has made a name for itself in the plant-based protein market and its upcoming IPO indicates the company is working to position itself to ramp-up its growth-prospects. Its products can already be found in 50 countries, Amazon Fresh and 20,000 other grocery retailers including Whole Foods, and over 10,000 restaurants, hotels, and universities, the largest among them being TGI Fridays. The company recently announced the additions of Twitter CFO Ned Segal and Coca-Cola CFO Kathy Waller to its board and the company already boasts investments from Bill Gates, Leonardo DiCaprio, former McDonald’s CEO Don Thompson, and Tyson Foods. This month Time Magazine announced the company’s Beyond Sausage product as one of its “Best Inventions of 2018.” Beyond Meat also recently revealed a 26,000 sq. ft research facility in El Segundo, CA where the company researches how it can create new, innovative products which mimic meat in look, feel, and taste. This is not a company sitting on its laurels and looking to ride the wave of growth in its industry, it is taking the necessary steps to be a leader today and for the future.
Financials: a work-in-progress
In Beyond Meat’s S-1 filing, the company reports revenue of $41.6 million in the first nine months of fiscal-year 2018, a 167% increase from the first nine months of fiscal-year 2017, and trailing-twelve months’ revenue of $67.9 million. Revenue increased 101.3% from $16.1 million in 2016 to $32.6 million in 2017. In a plant-based meat-alternative market which saw sales reach $670 million, up 24% from the previous year, Beyond Meat is already one of the larger name brands. The company does not currently generate a profit as both operating income and net income are negative. It will be important to monitor how the company uses the proceeds from its IPO, initially proposed at $100 million but subject to change as it navigates the IPO process. Per the S-1 filing the proceeds will be used to upgrade and expand manufacturing facilities, expand research and development and sales and marketing. If used wisely each of these investments in its own business should help to grow revenue and help the company reach profitability.
Risks
While Beyond Meat has risen to a grab a significant share of the plant-based protein market its refrigerated and frozen products are not without competitors. Privately owned Loma Linda Foods may be the oldest with its founding in 1890 but its offerings primarily consist of non-perishable canned goods. Tofurky is likely the most well-known competitor and directly competes with its own line of vegan-sausages. Impossible Foods makes the Impossible Burger which is the most direct competitor to Beyond Meat’s Beyond Burger. Many competitors are owned by large, publicly traded companies such as Morningstar Farms, owned by Kellogg, as well as the brands named earlier in this report. While competition is fierce at this early-growth stage of the industry, there is room for many different companies to succeed. Each company in this space has its own niche and the success of individual products bring additional awareness to market as a whole and ultimately benefits the group. A consumer who tries and likes Beyond Meat’s Beyond Burger is also likely to try and potentially buy Tofurky sandwich slices, Field Roast’s Frankfurters, and Sweet Earth’s frozen burritos and bowls.
Bottom Line
Beyond Meat is a large player in a fast-growing industry, veganism is an established diet and has a long history in many parts of the world, but in much of the West it remains a small, but fast-growing trend. Post-IPO Beyond Meat stands to be a rare pure-play business into the plant-based meat-alternative market. I think this company is worthy of a position in the growth allocation of any long-term-focused investor’s portfolio.
Cheers,
Jeremy
Fool One Home Fool
Supernaut
