Key points:
- Beyond Meat has a long term problem here
- Not just the COO attemptinig to eat noses
- Where is the barrier, the moat, that stops competition eating the margins?
Beyond Meat (NASDAQ: BYND) has a problem and it goes further than the COO's apparent attempt to eat someone else's nose. Sure, we can make all sort of jokes about someone driven so crazed by vegan- or vegetarian-ism that any source, anywhere, of animal protein looks good. But BYND‘s problems stem a great deal further than that. The company simply isn't going anywhere which for what is thought of and used to be rated as a growth stock that's just not a good idea.
As to what Beyond Meat does we probably all know that. The development of plant based alternatives to meat, but which look and possibly taste much like actual meat. Folk might like this on moral grounds – don't eat the animals – or even climate change ones. Raising ruminants does have an effect upon the methane levels in the atmosphere after all. There's even that land use argument – stronger in the US than much of Europe but still. Growing crops to feed animals uses more land than growing crops to feed humans.
Given that chemistry is getting better then perhaps the deliberate construction of plant based alternatives will find a ready market? The truth being that yes – but not, perhaps, as large as some might think. But that's not what BYND's problem has been. Rather, as we said before, they lack Warren Buffett's moat.
Also Read: The Best Vegan Companies To Invest In
The real problem is as we said earlier, Beyond Meat has no moat:
“But what’s to stop someone copying you and coming and eating your lunch?
Without that moat there isn’t anything. So a business can grow, be in what is a growing sector, and yet not make good profit because the margin gets competed away. Which is exactly where plant based meat substitutes are. There are no significant barriers to entry. No established brands to shrug off competition. The chemistry of making the foodstuffs varies a little across companies but not all that much. There are also many ways to achieve the goal.”
This is why Warren Buffett so likes investing in companies that have just such a moat. Without it your competitors really do come and eat your lunch. This isn't, not specifically at least, why Beyond Meat stock was down 6% yesterday. Short term stock movements are impelled by many things but long term economic models aren't one of them. But in the long term yes, a stock price will react to exactly those long term models – which is why BYND is down 84% over the past 12 months.
Sure, and plant based meat does seem to meet the current fashions. True, if you look at the supermarket discount aisle at the end of the day rather more of it seems to end up there than actual meat does but possibly that's just growing pains for the market. But for a producer there's this very large problem – what's to stop other people entering the market? How long before there's a generics manufacturer supplying the supermarket own brands? That's the problem BYND has – there's just no moat to stop competition destroying margins.
