Beyond Meat was forced to swallow a meaty dose of reality Tuesday.
J.P. Morgan, the New York-based international investment bank, announced it had downgraded stock of the plant-based burger company from “neutral” to “overweight.”
In effect, J.P. Morgan is telling investors to be wary of Beyond Meat’s stock because it may be overvalued. The stock has been trading for just more than a month, but the stock has surged nearly 600% from its initial public offering price of $25.
In a note to investor clients, J.P. Morgan analyst Ken Goldman called the stock “beyond our price target.” Shares of Beyond Meat were trading above $168 per share Tuesday before J.P. Morgan’s announcement. The news caused Beyond Meat shares to fall nearly 20% by mid-morning to $136 per share.
The alternative-protein startup’s share price has already exceeded the price target of every analyst on Wall Street and short-sellers have lost more than $400 million betting against Beyond Meat since it went public.
That J.P. Morgan would warn investors about Beyond Meat is not, however, a death knell for the company. Indeed, there’s plenty of positive news for Beyond Meat.
“This downgrade is purely a valuation call,” Goldman said. “As we wrote last week, ‘At some point, the extraordinary revenue and profit potential embedded in (Beyond Meat)… will be priced in’ – we think this day has arrived.”
Ironically, the same day J.P. Morgan issued its downgrade, Beyond Meat announced it was launching a new, improved formula for its burger.
The new Beyond Burger includes a mix of proteins — pea, mung beans and rice — so that the vegan burger qualifies as a “complete protein” with all essential amino acids. The vegan burger will also have a slightly different texture as a result.
Cocoa butter and coconut oil are used to create a marbling and texture that the company says more closely mimics real beef. The latest iteration of the patty also includes apple extract that changes the color of the plant-based meat substitute from red to brown when it’s cooked.
The success of Beyond Meat and other alternative proteins suggests the category is not a fad that will quickly run its course. Retail sales of Beyond Meat have more than doubled in the last year, accounting for $19.6 million. And thanks to restaurant chains like Carl’s Jr. and Del Taco, Beyond Meat’s food service revenue has increased by 491% over a year ago.
Yet, while alternative protein makers can rejoice in their recent success, beef producers can take pride in the fact they don’t need to “tweak” their formula in an attempt to make their products taste more like beef.