Plant-Based Milk a Poor Guide for Beyond Meat Stock Value: Analyst

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September 9, 2019

Stock in Beyond Meat ($BYND) took a hit last week when analyst firm D.A. Davidson handed the company an underperform rating. Brian Holland, an analyst for the firm, says investors have been relying too heavily on plant-based milk as a guideline for the market potential of plant-based meat. That, he says, has pushed Beyond Meat's valuation to unreasonable levels.

While people could start revving up interest in plant-based meat to match that of plant-based milk, the research firm argues consumers don't currently buy meat alternatives as often as their beverage counterpart. The 12 percent of plant-based milk purchasers who buy once or more a week account for 62 percent of consumption, according to Holland.

"The issue is frequency of purchase. There's two times the number of lactose intolerant people in the U.S. than those that identify themselves as non-meat eaters," Holland said in an interview with Cheddar Monday. "That minority of high frequency purchasers make up a disproportionate amount of total consumption. We think that's a potential hurdle for plant-based meat."

D.A. Davidson released the underperform rating last week with a $130 price target. In addition to forecasting a smaller-than-expected total addressable market, Holland said competition in the context of valuation is also a risk for Beyond Meat because it is being priced as a tech company.

"At 20 times revenue, you're assigning a tech valuation. When you assign a tech valuation, you're assuming IP, you're assuming very high barriers to entry," Holland said. "There's no real competitive moats here."

Beyond Meat stock closed down 3.5 percent on Monday, locking in its third straight session of losses. Pressure on the stock mounted after the CEO of rival Impossible Foods said the plant-based food maker is making expansion into the Chinese market a priority and speeding up its entry into the country. Impossible Foods has already introduced its products in Hong Kong and Macau and now ships to 450 restaurants in Asia, while Beyond Meat is currently available in Taiwan and Hong Kong. Holland told Cheddar global expansion it will be an "arms race" and that China represents a significant opportunity for plant-based meat brands, but warned against the challenges.

"We've seen on the dairy side that there are a lot of issues taking American brands and building trust in the Chinese market."