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Wall Street has fallen in love with Beyond Meat (NASDAQ: BYND ). The plant-based meat company went public in early May to huge fanfare. Long story short, the Beyond Meat IPO was a smashing success, with BYND stock staging the biggest opening day rally since the 2008 Financial Crisis.
BYND stock has continued to rally ever since. Shares are now up nearly 180% from their IPO price, and it's only been a few trading days. In other words, the Beyond Meat IPO was one of the most hyped up market events in recent memory.
But, there's more to this story than just hype. In the big picture, the huge success of the IPO is just the first chapter in what will turn into a robust long term growth narrative for Beyond Meat. Ultimately, that robust long term growth narrative could cause BYND stock to nearly triple in the long run.
Net net, the Beyond Meat IPO was a huge success for a reason. This company has huge long term growth potential, and only a fraction of that potential is priced into the stock today.
That's why I'm a buyer of BYND stock here. The short term may be choppy after such a huge rally. But, the secular growth narrative here is strong enough that this is the type of stock you buy and hold for the long run.
Beyond Meat Has Huge Growth Potential
The secular growth narrative underlying Beyond Meat is pretty simple.
There is a huge shift in the consumer economy from animal-based diets to plant-based diets. Behind this movement are a few things. Broadly, there has been lots of research that found animal-based diets actually have adverse impacts on human health and climate change. These diets also consume an unnecessarily large volume of resources. There has simultaneously been a number of media reports which have highlighted the dark underbelly of animal-based diets namely, animal welfare.
In response, consumers of all sorts (animal lovers, health nuts, environmental activists, etc.) have started to migrate away from animal-based diets towards plant-based diets. That's why total sales of plant-based foods in the U.S. rose 17% last year , and have been on a consistent double-digit growth trajectory for a long time.
A big part of this movement? Plant-based meats. Research is finally coming around to the point where plant-based meats that taste very similar to their animal-based counterparts are possible. Consequently, sales of plant-based meats in the U.S. rose 23% last year.
Plant-based meats still represent less than 1% of total meat sales in the U.S., but that won't last for long.
At one point in time, the plant-based milk category comprised less than 1% of total milk sales in the U.S. Now, plant-based milk accounts for 13% of all milk sales in the U.S. The plant-based meat category will follow a similar rapid market share expansion trajectory over the next several years, implying tremendous growth throughout the whole industry.
One of the most important players in the plant-based meat category? Beyond Meat. With U.S. revenues over just $80 million last year, Beyond Meat controlled about 12% of the plant-based meat market in 2018. That's up from under 6% market share in 2017.
Further, revenue growth was north of 175% in the back-half of 2018, and is projected to be around 200% in the first quarter of 2019. If this continues, Beyond Meat will grow to be a 15-25% market share player in 2019.
Broadly, so long as Beyond Meat can maintain this market leadership position in the plant-based meat market, then secular growth tailwinds will unlock tremendous long term value for BYND shareholders.
BYND Stock Could Triple
Zooming out, if Beyond Meat can maintain U.S. plant-based market leadership and simultaneously expand operations internationally over the next several years, then BYND stock is a multi-bagger in the making.
The meats market in the U.S. measured around $270 billion in sales in 2017. Assuming that market continues to grow at mild 1-2% rate over the next several years, then it's only a matter of time before total sales hit $300 billion.
Plant-based meat market share today is under 1%, but it's rapidly expanding. Given plant-based milk's ramp to 13% share over the past several years, plant-based meat has reasonable runway towards double-digit share.
Reasonably speaking then, plant-based meats could one day command 10% market share in a $300 billion U.S. meats market. That would peg the plant-based meat market at $30 billion in annual sales. As stated earlier, Beyond Meat is on track to be a 25% player in this market. At scale, that would translate into $7.5 billion in U.S. sales.
Meanwhile, Beyond Meat just started to expand internationally. Last year, international sales comprised just 7% of total sales. But, the international opportunity is quite large - $1.4 trillion global meats market, with a $4.2 billion and rapidly growing plant-based category. Thus, it's reasonable to assume that at scale, Beyond Meat's international business brings home around $1 billion in sales.
All together, Beyond Meat could one day do about $8.5 billion in sales. Gross margins were 20% last year, and are zooming higher (25% projected in Q1). At scale, they could hit 35%. Opex rates are simultaneously dropping rapidly, and should hit 25% or lower one day. That implies about $850 million in operating profits at scale, or about $700 million after a ~20% tax rate.
Based on a market average 17 multiple, that equates to a long term valuation target for BYND stock of nearly $12 billion. The market cap today stands under $4 billion. Thus, BYND stock is a potential triple in the long run.
Bottom Line on the Beyond Meat IPO
The huge success of the Beyond Meat IPO was just the first chapter in what promises to be a healthy long term growth narrative for BYND stock.
To be sure, that long term growth narrative will run into the occasional hiccup, as all growth narratives do. But in the long run, BYND stock is a potential multi-bagger in the making.
As of this writing, Luke Lango was long BYND.
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