Beyond Meat’s stock valuation has been getting a lot of attention as of late, possibly due to the surging stock price which has reached more than $120, valuing the company at nearly $8 billion.
The current $8 billion valuation puts Beyond Meat at roughly 3000% higher than its IPO valuation of about $240 million which was announced in May 2019.
How does Beyond Meat’s current market valuation compare to its historical value? Let’s zoom in on some of the valuation ratios that we will talk about.
In this article, we will look at Beyond Meat (NASDAQ:BYND) stock valuation from the point of a couple of ratios such as the market cap to revenue ratio (price to sales ratio), market cap to shareholders’ equity ratio (price to book ratio) and market cap to earnings (price to EBITDA ratio).
I will normally include the market cap to free cash flow and market cap to profit ratio when discussing a company’s market valuation. However, in Beyond Meat’s case, the company has been not only making losses but also having huge deficit of free cash flow. In other words, Beyond Meat has been unprofitable and burning a huge amount of cash as of 2Q20.
For this reason, I have excluded the discussion of valuation from the perspective of market cap to free cash flow and profitability ratio as it is meaningless to talk about these topics now.
Let’s move on.
Beyond Meat’s Market Capitalization
The chart above shows Beyond Meat’s historical market capitalization from 2019 to 2020.
As seen from the chart, Beyond Meat’s market cap has been fluctuating between $4 billion and $10 billion in the last 2 years. Right after its IPO around July 2019, the company has, at one point, surged past $10 billion and reached as high as $13 billion in market valuation.
However, the company’s extreme $13 billion market cap didn’t last long and its value declined slowly and hit $4 billion in March 2020.
As of August 2020, Beyond Meat’s current market capitalization hovered around $8 billion, which in my opinion was still heftily valued with respect to its IPO value of only $240 million.
Beyond Meat’s Price to Revenue Ratio
In terms of price to sales ratio, Beyond Meat was valued at about 20 times its TTM revenue as of August 2020 as reflected in the chart above.
For your information, the revenue in the chart above is measured on a trailing 12-months (TTM) basis.
While the current price to sales ratio of 20 is far from its historical high of 28, Beyond Meat’s valuation with respect to revenue is still on the high side, reflecting that investors are placing a high expectation on the company.
The chart above may suggest that the reasonable valuation for Beyond Meat is at 10 times its revenue, which corresponds to around $4 billion market cap at this ratio.
To show you how hefty Beyond Meat’s valuation is with respect to revenue, Kellogg Company, which operates in the same industry as Beyond Meat, is trading at only 1.8 times its sales.
Beyond Meat’s Price to Book Value Ratio
For your information, the book value represents the net worth or the liquidation value of a company.
When we look at Beyond Meat’s market cap to book value or shareholders’ equity ratio, the chart above shows that the company is currently trading at about 20 times its book value or net worth.
Between 2019 and 2020, Beyond Meat’s price to book value reached the lowest at around 10.0 in March 2020 but has since trended higher to 20.0 as of August 2020.
The market cap to equity ratio of 10.0 in March 2020 corresponds to the company’s market capitalization of $4 billion.
Again, the $4 billion market valuation may represent Beyond Meat’s reasonable valuation with respect to its net worth.
At the current valuation of 20 times its book value, Beyond Meat’s stock is richly valued.
For comparison purposes, Kellogg Company, which operates in the same industry as Beyond Meat, is valued at only 9 times its book value.
Beyond Meat’s Price to EBITDA Ratio
The chart above shows Beyond Meat’s market cap with respect to EBITDA or earnings before interest, tax, depreciation and amortization.
The EBITDA represents a form of cash flow and the cash is measured before investment in working capital. EBITDA is slightly different from operating cash flow in the sense that operating cash flow has already accounted for working capital investment such as inventories, accrued liabilities, capital expenditure, etc.
EBITDA is the purest form of cash flow related to the core operation of a company and is free of any distortion caused by depreciation, amortization, etc.
For your information, the EBITDA in the chart above is measured on a trailing 12-months (TTM) basis.
As reflected in the chart, Beyond Meat’s current market cap to EBITDA ratio is nearing the historical low of around 150 as of August 2020.
Prior to the current market valuation, Beyond Meat’s price to earnings or EBITDA ratio was averaged around 200.0 in 2020.
Is Beyond Meat’s valuation with respect to EBITDA reasonable at the current stock price?
To give you an idea of how rich Beyond Meat’s price to earnings valuation is, let’s have a quick look at Tesla’s price to earnings or EBITDA ratio. In Tesla’s case, its price to EBITDA ratio was only around 50.0 at the stock price of $1000.
Of course, the comparison between Bynd and Tesla may not be an apple to apple comparison as they are in separate industries and operate differently. However, the comparison can still be reasonably justified as both companies are in the manufacturing sector and the idea here is to quickly show you where Beyond Meat’s stock valuation has gone with respect to earnings at the current stock price.
In summary, Beyond Meat’s stock valuation has always been rich and on the high side as reflected in all the valuation ratios throughout 2020, suggesting that investors are expecting high growth out of this company.
Since early 2020, Beyond Meat’s market valuation has never been cheap and the stock price is trading at a hefty valuation with respect to its peers such as Kellogg Company which has a price to sales ratio of only 2.0 compared to 20.0 for Beyond Meat.
Based on the analysis of all valuation ratios, the reasonable entry point for Beyond Meat’s stock price is at a market cap of around $4 billion when all valuation ratios such as price to sales, price to book value as well as the price to earnings were at the lowest.
References and Credits
2. Featured images in this article are used under creative commons license and sourced from the following websites: Tony Webster.
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