June 7, 2019 / 6:14 PM / 2 months ago

Breakingviews - Beyond Meat gets extra fire from being rare

Products from Beyond Meat Inc, the vegan burger maker, are shown for sale at a market in Encinitas, California, U.S., June 5, 2019. REUTERS/Mike Blake

By Amanda Gomez and Karen Kwok

NEW YORK/LONDON (Reuters Breakingviews) - Beyond Meat is on fire. The meatless-burger maker reported first-quarter numbers only a hair better than it already estimated yet the stock, which had already quadrupled since its initial public offering a month ago, surged more than 15% in after-hours trading on Thursday, bringing its valuation to a whopping $6.8 billion.

The upstart producer that provides plant-based faux-meat options for restaurants like TGI Fridays as well as supermarkets has ridden environmental and healthy-lifestyle waves – offering a less natural resource-intensive product that’s easier on the arteries. Revenue rose 215% from a year earlier to $40.2 million in the three months ending March, and the company predicted 140% top-line growth for the full year.

Even taking that estimated revenue of $210 million for 2019, the latest market capitalization is 30-plus times sales. That’s too hot. The firm led by Chief Executive Ethan Brown faces the typical challenges of a food company, including sourcing the peas and coconut and canola oils that it uses to make its versions of burgers and sausages, getting its products placed in grocery stores – it favors the meat counter, not the vegetarian section – and regulations. 

Above all there’s the potential for massive competition, from startup peers like Impossible Foods, which supplies Burger King, as well as from deep-pocketed traditional meat companies like Tyson Foods, which is planning its own alt-meat products after exiting an investment in Beyond Meat.

Yet it’s easy to see why investors are eating it up for now. Beyond Meat is growing rapidly. The newly-public company said that it would break even on an adjusted EBITDA basis this year, earlier than expected. As the only listed play in its market, it’s also, well, rare. The scarce shares may remain in high demand at least while it’s the only item of its kind on the menu. 

Breakingviews

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