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Better Buy: Beyond Meat vs. Walmart

The novel coronavirus pandemic may have devastated many companies both large and small, but it gave other businesses -- and industries -- the opportunity to prove their value in a new way. Beyond Meat (NASDAQ: BYND) took advantage of the opportunity, and its meat alternative products have been flying off supermarket shelves. So has Walmart (NYSE: WMT), which has found a way to keep growing even as the world's largest retailer.

Let's see which one is the better buy today.

Beyond Meat plant-based patties.

Image source: Beyond Meat.

Why Beyond Meat is sizzling

There's been a lot of hype surrounding Beyond Meat, which produces plant-based patties and other alternative meat and poultry products. Although meat alternatives have been available for decades, Beyond Meat's more meat-like recipe was considered groundbreaking and brought the idea into focus for more consumers.

As a result, the field has flourished, with many companies developing meat alternatives. But Beyond Meat remains a leader in the industry and has a lot of power in its marketing and sales channels. The company has a wide reach, with products sold in 26,000 outlets including Walmart and Target. It also recently launched a new e-commerce site to reach customers directly.

These numbers explain why Beyond Meat's stock has exploded since its initial public offering in 2019.

Metric Q2 2020 Q1 2020 Q4 2019 Q3 2019
Sales growth 69% 141% 212% 250%
Earnings per share $(0.16) $0.03 $(0.01) $0.06

Data source: Beyond Meat quarterly reports.

The company is highly growth-focused and brings out new products to meet customer demand, such as a new meatballs box and affordably priced family packs. There was a second-quarter loss per share related to COVID-19 actions, such as relief funds and higher worker count, as well as repackaging costs to focus on consumer purchasing. But outside of that blip, Beyond Meat is finally becoming profitable. 

While Beyond Meat is ahead of its many competitors, other brands are breaking into the market, and it's not clear that Beyond Meat's products are different or better than others. In other words, although it's the leading brand, it doesn't have a very wide moat. Some of the newer brands sell at lower price points and have direct selling channels, such as Kroger's Simple Truth brand, which is distributed in the supermarket chain's 2,758 stores.

Walmart associate in the store.

Image source: Walmart.

Walmart, the trusted American powerhouse

Walmart is the largest retailer in the world, with almost 11,500 global stores, including close to 5,000 in the U.S. Revenue for fiscal 2020 (which ended Jan. 31) came in at $524 billion, almost double rival Amazon's $281 billion for the 12 months ending Dec. 31. At that size, it's no surprise Walmart's growth has been more steady than spectacular -- annualized growth over the past three fiscal years was just 2.6%, from $485.9 in 2017.

But COVID-19 was a strong tailwind for the company, which was considered an essential business because of its consumer staples dominance and thus allowed to stay open while many other businesses had to close. Revenue soared in the first quarter, with 10% same-store sales growth for the quarter ending April 30. The accelerated growth didn't subside as other stores reopened, and Walmart reported a 9.3% same-store increase in the quarter ended July 31.

Walmart has been unrelenting in its counterattack on Amazon, which has chipped away at Walmart's retail dominance. It's now investing in many initiatives to solidify its leading status and expand its reach, some padding its existing operations and others going into new territory. It's pumping up its digital channels with Walmart+, a subscription plan that competes with Amazon Prime and offers free delivery for an annual $98 fee, and it's recently started testing drone deliveries.But it's also teaming up with Oracle to buy TikTok. In other words, there's still plenty of room to run.

Not even a competition

Beyond Meat's stock has more than doubled this year -- to put that in perspective, Walmart is up about 16% (which is still beating the market). However, Walmart's forward price-to-earnings ratio comes in at a reasonable 27, while Beyond Meat's is a staggering 278.

Beyond Meat will grow, but at this point it's hard to justify paying the premium on its share price. Walmart, on the other hand, is using its tremendous power to gain greater market share and lead in new opportunities, and there's lots of upside for its stock. Walmart is the better buy today. In this case, slow and steady wins the race.

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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Beyond Meat, Inc and recommends the following options: short January 2022 $1940 calls on Amazon and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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