Will Meat Reach a Billion Dollar Market Cap by 2025? | The motley fool

Beyond the meat (BYND 0.58%), a leading manufacturer of plant-based meat replacement products, went public on May 2, 2019, at $25 per share. Its shares closed at $65.75 on the first day and then rose to an all-time high of $234.90 on July 26, 2019.

At its peak, Beyond Meat’s market cap reached $14.1 billion, or 47 times the revenue it would actually generate in 2019. The bubble valuation made it an easy target for bears as growth his got cold and losses widened. Rising interest rates exacerbated that pain by driving investors away from speculative growth stocks.

Today, Beyond Meat shares trade at around $7, giving the company a market cap of $492 million. Clearly, it has disappointed many investors over the past five years, but can it more than double from these levels and become a $1 billion company again by 2025?

Image source: Beyond Meat.

Why did Beyond Meat’s stock crash?

When Beyond Meat went public, many restaurants, retailers and consumers lined up to try its plant-based meat products. That’s why its revenue increased by 239% in 2019.

But in 2020, its revenue grew by only 37% as many restaurants closed during the pandemic, fewer retailers stocked its products and cost-conscious consumers turned to cheaper animal-based meat products . At the time, the company optimistically expected its growth to accelerate again after the pandemic faded.

Unfortunately, Beyond Meat’s revenue grew only 14% in 2021 and its net loss tripled. In 2022, its revenue fell 10% and its net loss doubled. It did not recover after the end of the pandemic because inflation reduced its pricing power, many consumers stuck with animal-based meat products and a growing number of competitors such as Tyson and Impossible Foods dug into the shrinking market.

As a result, Beyond Meat’s gross margin fell from 33.5% in 2019 to a negative 5.7% in 2022 as it hurriedly liquidated its excess inventory. This decline was exacerbated by an ill-fated joint venture with PepsiCo to sell plant-based cereals, which generated dismal sales and further compressed its gross margin.

What’s next for Beyond Meat?

In 2023, Beyond Meat’s revenue fell another 18% to $343 million and gross margin fell to negative 24.1%. However, it narrowed its net loss slightly from $366 million to $338 million after it laid off hundreds of employees and cut other operating expenses. It also narrowed its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) from $278 million to $269 million.

For 2024, Beyond Meat expects somewhere between an 8% decline and a profit below 1% of revenue, while analysts predict a 6% decline. However, the company believes gross margin will turn positive again for the full year and reach the “mid to high teens” as it consolidates its network and expands its domestic manufacturing capabilities. It also believes it can overcome inventory and pricing issues as the macro environment improves.

Beyond Meat did not provide a profit outlook for 2024, but analysts expect it to narrow its adjusted EBITDA loss to $100 million and its net loss to $146 million. Those are certainly steps in the right direction, but it still ended the first quarter of 2024 with just $173.5 million in cash and equivalents and $1.1 billion in outstanding debt.

This debt raises Beyond Meat’s enterprise value to $1.56 billion, which is more than 3 times higher than its current market capitalization of $492 million. So if we look at its market cap alone, Beyond Meat looks reasonably valued (but not a roaring bargain) at 1.5 times this year’s sales. But if we look at its enterprise value, which is a more accurate measure of a company’s value in a full buyout, it looks significantly more expensive at 4.8 times this year’s sales.

Will Beyond Meat’s market value reach $1 billion by 2025?

In 2025, analysts expect Beyond Meat’s revenue to finally grow 7% to $345 million as it narrows its adjusted EBITDA loss to $78 million. However, I would be skeptical of this prospect unless its revenue actually stabilizes on an ongoing basis.

If inflation remains hot and consumers remain indifferent to plant-based meat products, Beyond Meat may continue to struggle to scale its niche business. Even if it generates $345 million in revenue in 2025, it will need to trade at nearly 3x sales to reach a $1 billion market cap again. I don’t think it can reach that milestone within the next year, but its stock price could stabilize at these levels if its gross margin turns positive and narrows its net losses significantly.