The plant-based protein market is steadily growing. In 2019, global sales were $17.2 billion. By 2027, vegan meat substitutes and plant-based protein liquids (like Oatly) are projected to ring up almost $28 billion in sales. While Beyond Meat® and Impossible® were the pioneers in vegan burgers, Canada’s The Very Good Company is gaining traction with its savvy branding and chef-inspired recipes. Even old-school food makers like Kellogg, Conagra, Archer Daniels and Midland and Dupont Food are all showing up at the party. So, which is the best horse to bet on?
Oatly is launching its U.S. IPO with $421 million in sales and a global footprint. The Very Good Food Company, which started in Canada and is expanding into the U.S., is lapping the competition in revenue growth. 2020 revenue was $3.8 million (U.S.), up 364% year over year. Beyond Meat enjoys partnerships with large restaurant chains, and one hundred times the sales of the Very Good Company, at $407 million in 2020.
Below is a more detailed examination of the strengths and weaknesses of:
Beyond Meat has great partnerships. It has shelf space at major food retails, like Whole Foods, Kroger, Sprouts, and Target, and branded fare at fast food chains, like Carl’s Jr. and McDonald’s McPlant menu. With all of those marquise partnerships, why in the world did the market value of Beyond Meat just drop by half, to a 52-week low of $103/share (on May 10, 2021)?
Retail was up a respectable 28% in the 1st quarter, compared to the same quarter a year ago. However, Beyond Meat’s food service vertical (fast food) was down 26%. Beyond Meat’s CEO Ethan Brown cited COVID-19 as the cause for the weakness in food services. In the 1st quarter of 2021, people were still more comfortable cooking at home. With the vaccine roll-out and more states opening up, there is cautious optimism that the food service vertical will come back. Meanwhile, the company’s focus is on building out the production infrastructure needed for continued expansion in the U.S., the EU and China.
Beyond Meat’s shares were trading above $200/share in late January of this year. While it’s easy to blame the tepid 2.7% year-over-year revenue growth in the 1st quarter for the share price plummet, the core cause is more likely insider selling. The insiders of Beyond Meat have been on a selling spree since the company hit the January 2021 high. This is something to be wary of with The Very Good Food Company, too. Insiders are always going to be tempted to sell into strength, to turn some of their wealth on paper into usable currency – particularly after the pandemic scare.
Beyond Meat has $1.1 billion cash on hand (as of April 3, 2021). One billion dollars worth of bond buyers were willing to bet on the price of Beyond Meat more than doubling. They are receiving no interest, but will be able to convert to shares at approximately $206/share in 2027.
Beyond Meat has $1.1 billion cash on hand (as of April 3, 2021). One billion dollars worth of bond buyers were willing to bet on the price of Beyond Meat more than doubling just two months ago, on March 2, 2021. They are receiving no interest, but will be able to convert to shares at approximately $206/share in 2027.
The Very Good Food Company (TSXV: VERYV) (OTCQB: VRYYF) (FSE: 0SI)
Anytime you see sales/revenue growth of 364%, it is positively eyepopping, particularly when the most recognized brands, like Beyond Meat, are flatlining. So, how is The Very Good Food Company achieving such feats? According to CEO Mitchell Scott in the 4Q 2020 earnings report, The Very Good Food Company’s “eCommerce channel demonstrated an 825% increase in online orders,” while “retail distribution points [grew] from 100 to 1,300.” The company has a very smart social networking strategy in place. The minute the company name came up on my radar (from a WhatsApp text), I started getting ads on my Instagram account. The sassy approach to branding is quite appealing, too.
This year, The Very Good Company purchased the Cultured Nut and will rebrand this popular artisanal nut cheese as The Very Good Cheese Co. On May 6, 2021, the company signed a distribution deal with United Natural Foods to distribute their products in the U.S. UNFI is the largest publicly traded wholesale distributor of health and specialty food in North America. This deal expands the partnership the two companies began in Canada in the 4th quarter of 2020.
The addition of The Very Good Cheese Co., UNFI distribution, and a new production facility in California, to expand into the U.S. market, bodes well for continued rocket-like revenue ascensions.
The only downside to an investment now in The Very Good Food Company is that the share price is even more astronomical than the revenue growth. The company soared from 57 cents to $7.43 after its public listing in Canada. (It trades off the boards in the U.S.) You might think that the current price of $3.69 is a pretty good deal, until you realize that the company’s market value is $434 million, while the annual revenue is under $4 million. Last year’s net loss was $11.42 million. The Very Good Food Company is valued at 112 price-to-sales ratio, compared to Beyond Meat’s price-to-sales ratio of 17. Both companies are still in the red – ramping up production to meet increasing demand.
With the whirlwind of acquisitions and distribution deals, it’s certainly possible that The Very Good Food Company grows beyond its current valuation, without ever dipping. However, that bet is a gamble, particularly when insiders might be tempted to cash in some of their paper gains.
Oatly is another company with astonishing revenue growth. Sales doubled in the most recent quarter compared to the prior year. Oatly has oatmilk, yogurt and ice cream, making these popular delights available to the lactose-intolerant, as well as those folks who want a lower carbon footprint. You can buy Oatly in grocery and drug stores around the world. 64% of Oatly’s revenue comes from EMEA, with 24% in North America and 13% in Asia. (Oatly is based in Sweden.)
According to Oatly’s website, “Oatly exists in order to help as many people as possible make the switch from an animal-based diet to plant-based, which scientists say is one of the most effective actions an individual can take right now to save our planet.” If you’re a fan of Oatly’s products and mission, chances are you’re going to want to own the stock. The only real question is, “Is the price right?” Should you buy now, or wait for a better bargain?
Once Oatly announces its price offering and hits the big boards, it will be easier to determine if the price is a deal or too lofty. The F-1 IPO filing is missing a few key elements, such as board members. It warns that Oatly may be a “controlled company” that doesn’t have to adhere to all of the rigors of most publicly-traded companies, such as boards. Another potential red flag for investors (not for customers) is that the company has lost money for several years, with $60.4 million and $35.6 million lost in 2020 and 2019, respectively. Oatly, like Beyond Meat and The Very Good Company, is investing in expansion – like many younger, popular companies (such as Nio and Tesla). Any kind of supply disruption with oats would be catastrophic.
Old-School Food Providers
Plant-based cuisine is only a small piece of the old-school food manufacturers, like Conagra, Kellogg, Tyson, Archer Daniels and Midland and Dupont. Food manufacturing tends to be a very low-margin business, with predictable sales. As such, many of these century-old companies have flat revenue growth, and are carrying a substantial load of debt. Whereas the three plant-based protein leaders listed above are borrowing money to keep up with surging demand of their innovative products, most of the old-school food manufacturers have borrowed money to pay dividends and buy back their own stock (financial engineering). Conagra is rated BBB-, Kellogg is BBB, Tyson is BBB+. BBB is the lowest rung of investment grade before the company becomes speculative (a junk bond).
Investing in Beyond Meat at today’s price is a 50% discount from where the company traded in January of this year. The Very Good Food Company is still trading at a very lofty price, even with a 50% discount off the high. Oatly’s price might be delicious. We’ll just have to open up the package once it hits the big boards to see. (Stay tuned to my Twitter feed for an update, as the pricing and the public listing are announced.)
Beyond Meat’s share price rollercoaster ride is an example of why regular rebalancing is key to successful investing in the 21st-Century. (Click to get more information on how to rebalance regularly in your wealth plan.) Rebalancing works. Market timing rarely does.
Full Disclosure: I own shares of Beyond Meat.
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Natalie Pace is the co-creator of the Earth Gratitude Project and the author of The Power of 8 Billion: It's Up to Us, The ABCs of Money, The ABCs of Money for College, The Gratitude Game and Put Your Money Where Your Heart Is. She is a repeat guest & speaker on national news shows and stages. She has been ranked the No. 1 stock picker, above over 830 A-list pundits, by an independent tracking agency, and has been saving homes and nest eggs since 1999.