Hi I'm Jimmy and this video
we're looking at Beyond Meat
ticker symbol BYND.
Our goal with this video is to try
to get an understanding of the
fundamental business of Beyond Meat.
Look at where that business is going
how big it can be and then hopefully
we can look at the
at least the implied fair value of
Beyond Meat stock so beyond meats
IPO was just a few months ago at the
start of May of 2019
where they started trading at about
twenty five dollars a share.
Well since then Beyond Meat
is up about five hundred and eighty
percent. So let's look at the Beyond
Meat business.
So Beyond Meat operates in two main
segments fresh foods and frozen
foods fresh foods accounted for
84 percent of 2018 revenue
and frozen foods accounted for the
other 16 percent of 2018
revenue. So what makes
Beyond Meat so unique that its stock
would jump as much as it has
since it went IPO.
While it's that their food is 100
percent plant based and they're
designed to look Cook
and taste like traditional
meats now from a business
perspective what Beyond Meat is
accomplished.
That's truly unique is that their
products specifically they're
beyond meat Burger which is their
flagship product well they're
sold out of the meat case in grocery
stores unlike their veggie burger
competitors.
So this could be a real advantage
for them.
And it's said that the
Beyond Meat burger and many of
their other meats offer the same
protein benefits that traditional
meats offer.
So our question is how
many of these can they sell.
Well one of the advantages of
analyzing a company like this is
that we get to look at their S-1
from now on S-1 filings
just like our annual report except
it's way more in-depth and it covers
a lot more.
The S-1 filings only filed generally
when you first go public.
So I bring this up because I got a
lot of the information that I'm
using for this video
in the S-1 filing that I tried
to go to some other places where I
thought the company might have a
natural bias.
So how big can they be.
Well let's try to project 10
years out. So in 2018
it's estimated that one point four
trillion dollars worth of meat was
sold worldwide.
Now it's estimated that the meat
market is going to grow by about one
point five percent per year.
So if we were to grow one point four
trillion out until 2029
which is 10 years from our current
year and 11 years from our 2018
one point four trillion Well we end
up with about one point six five
trillion dollars in meat spent for
twenty twenty nine.
So now we have to make a few more
assumptions.
First let's assume that only half of
the entire meat industry can
actually have a similar product
created with plant based products.
Now Beyond Meat is doing this for
pork beef and poultry.
So management is Beyond Meat claims
that they can actually do 100
percent of products out there.
But let's be conservative and assume
only half of the meat market will
have a viable replacement with plant
based meats.
That leaves us with the potential
market for BYND of about
eight hundred and twenty five
billion dollars.
Now we need to estimate how much of
the population is willing to switch
from traditional meats over
to alternative meats like the Beyond
Meat Burger Beyond Meat sausages or
whatever it is the best
estimates I could find for this
ranged anywhere from 9 percent
to 15 percent.
Now we could split the difference
and call it 12 percent.
But I'm a big fan of being
conservative so how about we call it
10 percent.
Just be on the safe side so now
10 percent of our eight hundred
twenty five billion dollars switches
and we end up with a potential
market of eighty two point five
billion dollars and that's in twenty
twenty nine.
Now these are global sales.
The next thing we need to do is
decide how much of the market is
Beyond Meat going to control.
Now just as a reference point
Pepsi is said to have about 20
percent of the beverage market and
Coke is said to have about 40
percent of the beverage market but
they've been around for a really
long time.
So how about we say that beyond meat
is going to control 5 percent of the
alternative meat market by 2029.
Now this may be a bit conservative
but that's OK so we're going to say
that that's a total revenue of four
point one billion dollars.
This is what a potential revenue
chart would look like.
Assuming that we grew
it from where it is now up to twenty
twenty nine.
So for 2017 and 2018
those historical numbers 2019
for 2022 I took analyst
estimates and everything beyond
that. Well what we did is we tried
to come up with a growth rate that
would get us to 2029
to our estimated revenue number.
So this is what the revenue growth
rate would look like.
Assuming we sort of stair step that
down like that the blue our
historical numbers those are
actual numbers.
And then the green numbers those are
the analyst estimates.
I took those exactly as they were.
And then the yellow or what I added
to try to get us to our final
number. So when we look at this
chart I can easily make the case
that the drap between 2019 and 2020
according to analysts is a bit
drastic and major maybe
it makes more sense to have a more
logical progressive downward
sloping growth rate.
But even if that were true this
still works the same because this
ends up being fairly conservative.
If we think that their growth rate
is accurate first of all for 2019
and 2020.
And if we took our more conservative
growth rate then these are numbers
end up being a bit more conservative
which I think works well.
Now here's where things get
interesting.
So you know what this chart doesn't
account for.
It doesn't account for new products
Beyond Meat is expected to come up
with bacon steaks
chicken cutlets and who knows
what else.
And in theory each time
a new product did it was would be
added. We should see a pop in
revenue and that pop in revenue
is likely to stick around.
Making these numbers even
more conservative than just basing
it off what we already have.
And this brings us to the problem.
So let's pretend that our numbers
are way too conservative.
When we switch back to the revenue
chart. Well let's pretend that
our four point one billion dollars
in revenue in sales in 2029
is half of what it really should be.
So we bump that up to eight point
three billion.
Now clearly this chart doesn't make
any sense. So let's double all of
the projections.
Now we end up with some that looks
like this.
And by the way this wouldn't be that
tough. of an estimate to come up
with with a few adjustments to some
of our assumptions but let's imagine
this is the one we want to use.
We'd like this better.
Where do we think BYND stock
is going to be trading at in twenty
twenty nine.
Well that's tough to say.
Just based off of revenue to
use revenue we would really need
some margin assumptions.
So let's look at gross margins
in 2018.
BYND gross margins were 20 percent
and just so we're on the same page
gross margins are how much money a
company has after they make their
product. So if a company
has sells 100 dollars worth of
product and gross margins
are 20 percent that means that their
product cost them 80 dollars to
make.
Now this doesn't include things like
research and development or selling
costs or taxes or interest
expenses or anything like that just
the materials and the costs
associated with making the actual
product. Okay.
So that's gross margins.
Now if we don't use 2018
gross margin numbers and we use the
last four quarters instead.
Well that would include the first
quarter of 2019.
Well gross margins jumped to twenty
three percent.
So for all of 2019 margins
are expected according to analysts
to be 28 percent and 31
percent in 2020.
And the reason for these jumps
in beyond meats gross margins
is economies of scale economies
of scale should kick in
as the company gets bigger and
they get more efficient at making
their products.
Analysts are expecting long term
gross profit margins to be about 35
percent which is fantastic
because if we compare that to other
food companies like Tyson
Foods gross margins of 13
percent or Cargill's profits
their gross profit margins are
eleven percent then now they're a
private company so I just took the
numbers I could find.
But either way that's about
where some of the competitors are
at. So interestingly the 35
percent number would actually be in
line with companies like Kellogg's
or General Mills at least
from the food sector and for
real this time.
This brings us to the problem.
So the problem is that
we need some way to value
BYND stock.
We need some measure.
We can't use price to earnings
ratios because they're not
profitable so PE doesn't work
Discounted cash flow doesn't work
because right now they have negative
free cash flow since we projected
our sales well it makes sense for us
to try to use price to sales.
Now we know that General Mills and
Kellogg's have similar marching
numbers at least comparable
margin numbers.
So General Mills currently has
a market cap of about thirty two
billion dollars and they generated
about eighteen point six billion in
revenue in the past four quarters.
So we take the market cap.
We divide that by revenue and that
gives us about one point nine
times revenue.
So that means that the market cap is
one point nine times larger
than the size of the revenue
catalogs looks very similar.
So let's say that we believe that
beyond meat stock has better
potential than both of those
companies they're healthier
they're better for the environment.
We think that they're going to end
up being a leader in this space.
Let's say that we're gonna give them
an even 2x slightly
above this industry.
So using our doubled revenue numbers
we take our eight point two billion
dollars in revenue and we apply our
2x price to sales ratio to
it. That gives us a projected
market cap of sixteen and a half
billion dollars.
But the thing is that's in 2029.
Right now at beyond meets
current price of about one hundred
seventy five dollars
well BYND stock is currently showing
that their market cap is 10 and a
half billion dollars today.
So even if we're right with our
doubled the numbers and they have
eight plus billion dollars in
revenue in 10 years.
Well I would imagine at that point
that BYND stock
is probably going to be trading
at a more reasonable.
Multiple at that time.
Now let's pretend they are using
the 2x and they are truly valued
at sixteen and a half billion
dollars.
So assuming that BYND stock doesn't
fall at this point and they go from
ten and a half or so billion
now to sixteen billion in ten
years.
Well that's only 60 percent
give or take 60 percent upside
over the next 10 years.
To put that in perspective the S&P
500 is up about 20 percent
so far this year.
Now if we were able to buy this
stock back at the twenty five dollar
level when BYND first
had their IPO.
Well that's a fantastic move
but at this price I think it's
so much more difficult to justify
paying this kind of price.
And frankly I think it's not worth
the risk. In my mind.
But what do you think.
Do you think that the numbers were
too conservative.
Do you think we were too aggressive
with them. Do you think that
BYND is going to be worth as
much as we say it could be in
10 years.
Please let me know what you think in
the comments below.
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Thank you for stick with me all the
way to the end of the video and I'll
see in the next video.