Beyond Meat (NASDAQ: BYND) announced stellar Q3 2019 results, burying Wall Street analyst estimates once again. However, traders sold down shares after hours -10% ($94.66) in anticipation of potential selling pressure tomorrow as a result of the shareholder lockup expiry.

Q3 2019 Est. Q3 2019 Actual % Beat
Revenue $83.4m $92.0 10%
EBITDA $7m $11m 61%
EPS $0.04 $0.06 66%

The lockup expiry is what it is, all IPOs deal with it. We are of the view that the selling pressure from early shareholders won’t be nearly as significant as bears on the name presume. We believe it will be a volatile day of trading as the market calibrates the supply/demand, however analyst estimate upgrades will ultimately buoy the stock.

For the record this isn’t a ‘me too’ unicorn, they just clocked their first positive net income line — unheard of at this early stage of growth.

Beyond Meat Share Price ($/Share)

Source: Yahoo Finance

Valuation & Upside – Just Scratching the Surface for the Faux Meat Category

Grizzle nailed the top on our BYND call options — selling at $209 at the end of July (we continued to hold our original shares). We recently started buying out of the money call options again, we see value in owning the shares outright or playing riskier option positions at the $100/share level.

We get a lot of push back on our long-term 2030 target price of $1,100/share, predominately from investors who can’t conceptualize hyper growth (companies growing revenues excess of 50% YoY). We again reiterate our view that it is absolutely meaningless to bemoan a high price-to-sales ratio without taking into account underlying growth of the business.

Beyond’s top-line revenue grew 250% YoY to $92 million for the quarter, you can’t slap a peer group average valuation multiple on that kind of growth and call it a day — it just doesn’t work like that.

Beyond Meat Quarterly Revenue

Source: Company Filings

The singular goal for Beyond Meat is to disrupt the animal meat market and Ethan Brown (CEO) reiterated his goal that in less than 5 years they can drop their pricing below animal protein.

The company hiked their full year 2019 revenue guidance once again, taking it from $240 million (it was $210 million prior to that) to $265-$275 million. The singular goal for Beyond Meat is to disrupt the animal meat market and Ethan Brown (CEO) reiterated his goal that in less than 5 years they can drop their pricing below animal protein — that by definition IS disruption.

We outline a conservative revenue growth runway over the next 5 years that doesn’t take into account animal meat disruption, simply continuing to execute on the current trajectory. In this scenario the company would have $6 billion of sales by 2024, which would represent less than 0.32% of global meat sales — a literal drop in the bucket.

Applying a punitive 2X revenue multiple we get to a target market cap of $12B ($200/share), which would represent a 15% annual return CAGR out to 2024. Applying a far more realistic 4X revenue multiple given the strong growth potential we get a $24B ($400/share) target market cap, representing a 32% annual return CAGR to 2024.

Source: Grizzle Estimates

Beyond Meat is the dominant meat alternative brand — sales growth is 20X vs. the next leading brand.  The company’s strategic partnerships continue to explode with Dunkin’ Donuts, McDonald’s, Denny’s, Subway, and KFC testing or beginning their mass roll-out strategy. Additionally, Beyond is aggressively targeting Asia, securing distribution in Hong Kong, Taiwan, South Korea, and Singapore.

Operations – Lean Mean Faux Burger Machine

Beyond Meat continues to showcase it’s operational chops. It’s rare to find a company with this kind of blistering high growth that can deliver both on the top line and the bottom line.

Gross profit increased 554% YoY to $32.7 million and gross margin continues to grow sequentially QoQ, improving from 34% in Q2 to 36% in Q3.

The company has now delivered 2 straight quarters of positive operational income, adjusted EBITDA came in at $11 million, beating estimates by 61%. Beyond is targeting a mid-teens EBITDA margin (it currently stands at 11%).

Net income stood at $4.1 million (1st quarter of profitability) vs. a net loss of negative $9.3 million in the previous year.

Beyond Meat Margins by Quarter

Source: Company Filings

In the interest of full disclosure, employees of Grizzle personally purchased and currently own stock in Beyond Meat. See the Content Disclosure section on our Terms and Conditions page for more details.

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The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Grizzle hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.