The share price of US stock Beyond Meat (NASDAQ:BYND) has been pretty volatile recently. In January, the company announced an unexpected joint venture with PepsiCo that sent it surging from $125 per share to $192. But since then, it has been on a downward trajectory. So much so that it’s now trading at around $110 and is actually down 10% over the last 12 months. What’s causing this lacklustre performance? And is this an opportunity to pick up some shares for my portfolio at a discount?
The falling Beyond Meat share price
As far as I can tell, the recent decline of Beyond Meat’s share price appears to stem from two leading factors. The first and less concerning is its high-flying valuation. When it was trading at around $192 per share, the company had a market capitalisation of around $12bn, placing its price-to-sales ratio around 30 times.
Seeing high valuations on growth stocks is not uncommon. However, these also tend to suffer the most when bad news comes along. In the case of Beyond Meat, its first-quarter results were not as good as investors had hoped. Analyst forecasts expected total revenue for Q1 to be around $113.8m. However, while revenue did grow by 11%, the firm only achieved $108.2m in sales. Naturally, after missing shareholder expectations, the Beyond Meat share price experienced a bit of a sell-off.
The second reason for the decline appears to stem from growing uncertainty surrounding the fracturing meat alternative industry. Over the past few months, a growing number of companies have been entering this space. One notable competitor to Beyond Meat is Impossible Foods. And now the firm also has to worry about Tyson Foods (NYSE:TSN), which recently announced the launch of its own plant-based burgers.
The rising competition
With Tyson Foods being the biggest producer of beef, poultry, and pork in the US, this rival firm is a well-financed multi-national business. And has already announced its new product will be available in 10,000 stores across America. Needless to say, it seems to be a considerable competitive threat.
However, while the rising level of competition is quite concerning, there are some reasons to be optimistic about the Beyond Meat share price. According to Tyson Foods, plant-based protein sales exploded by 148% in 2020, with no signs of slowing down. And so, with the market size growing at a considerable pace, the ability for Beyond Meat to continue its growth despite competitive pressures appears to remain intact. At least that’s what I think.
The bottom line
Even after declining to around $110, the Beyond Meat share price is still trading at a considerable premium, sitting at a price-to-sales ratio of about 17. Given the popularity of Beyond Meat’s products to date, I think the company is perfectly capable of retaining a considerable portion of market share.
Tyson Foods’ new burger does directly compete with its own. However, even if it proves to be more popular, Beyond Meat has a vast collection of other products (such as plant-based sausages, chicken, and mince) that can maintain its growth. Therefore, despite the risks, I would consider adding this business to my portfolio.