Beyond Meat Inc. (BYND, Financial) has seen its star fall considerably since touching all-time highs in late July. Shares of the plant-based meat substitute producer have dropped nearly 70% from their peak. Even so, the stock continues to trade at about three times its summer initial public offering price.
Many investors were left aghast as Beyond Meat surged throughout the summer, while others fell silent during the multi-month decline that followed. Beyond Meat is certainly not a stock for the faint of heart.
The persistent divide between bull and bear camps, even among Wall Street analysts, reveals a remarkable lack of clarity. No one seems to know exactly where Beyond Meat will be headed next, which has resulted in most analysts opting to assign neutral ratings until things shake out more definitively over the next several months. However, not all analysts have proven to be so cautious.
Bernstein: Hoping for a McDonald’s deal to juice up shares
On Nov. 5, Bernstein upgraded Beyond Meat from a “market perform” to an “outperform” rating, with 30% upside implied.
The upgrade was based principally on Bernstein’s expectation that Beyond Meat would soon ink a partnership deal with McDonald’s Corp. (MCD, Financial) that would see the fake meat company’s products offered in hundreds (if not thousands) of restaurants across the country.
McDonald’s has been offering Beyond Meat products on an experimental basis for several months, but it remains to be seen if the fast-food titan will be willing to take the plunge on a much broader relationship. As a result, Bernstein’s analysts pegged the probability of the tie-up at 50%, which, while hardly a sign of overwhelming certainty, indicated a moderately high level of confidence.
Shares are down about 9% since Bernstein upgraded his rating.
Berenberg: Advantage in the pure-play
On Nov. 14, Berenberg, a German investment bank and analyst shop, initiated coverage of Beyond Meat with a “Buy” rating and a $100 price target (implying 25% upside from the price at initiation).
Berenberg based its recommendation on a number of advantages it believes Beyond Meat currently enjoys. Most importantly, according to Berenberg’s analysts, is the company’s unique position as a pure-play opportunity. While a number of major players are moving to develop their own plant-based meats, including food giant Tyson Foods Inc. (TSN, Financial), Beyond Meat is the only publicly traded company that is solely dedicated to developing and producing such products. In Berenberg’s view, this offers an advantage in terms of focus.
Berenberg’s analysis also drew upon other factors, including perceived advantage both in Beyond Meat’s capacity for innovation and in its established distribution infrastructure and relationships.
Shares are down about 7% since Berenberg initiated coverage.
Oppenheimer: A good business, but an overvalued stock
On Dec. 3, Oppenheimer initiated coverage of Beyond Meat. Driven by concerns over the company’s rich valuation, Oppenheimer struck a cautious tone while issuing a “market perform” rating:
"We overall look quite favorably upon the Beyond Meat brand, product assortment, track record of innovation, longer-term prospects, and positioning to the very on-trend alternative meat category. However, a pricey valuation, increasing competition, and the potential for new selling pressures following the expiration of the lock-up suggest more muted upside potential, in our view.”
As has been the case for many analysts and investors, valuation remains the sticking point for Oppenheimer. Beyond Meat offers a strong product and boasts an expanding list of partners and customers, but its market capitalization of more than $4.5 billion implies a level of growth and eventual market share that is difficult to defend.
Shares are down about 4% since Oppenheimer initiated coverage.
Verdict
Many analysts are still unsure of how they should treat Beyond Meat. Wall Streeters can have a hard time assessing the prospects of such a volatile growth business. Yet, when all is said and done, Beyond Meat is still just a company. It is governed by the same rules that govern all enterprises. No company can defy economic gravity forever. The spectacular deflation of Beyond Meat’s share price over the past four months is ample proof of that.
Ultimately, it is hard to see much to like about Beyond Meat as a stock. That is not to say it is a bad business per se – far from it, in fact. But an overvalued company is still overvalued, regardless of the company’s relative or absolute strengths. As a result, I have to side with Oppenheimer on this one: Beyond Meat is both a good company, and a bad stock to own.
Disclosure: Author is short Beyond Meat.
Read more here:
- Is Apple Still a Growth Stock?
- Private Equity 2020: Allocators Show Mixed Outlook
- Energy Fuels: Contrarian Opportunity With Explosive Potential, Pt.Ă‚ 2
 Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
