Text size

Beyond Meat stock is busting out on its first day of trading. The company priced its initial public offering at $25, its shares opened at $46, and the stock was trading at about $67 per share late Thursday afternoon.

The 140% one-day gain is better than the first-day performance of such hot recent IPOs as Lyft (ticker: LYFT), Pinterest (PINS), and Zoom Video Communications (ZM).

The stock is performing so well the entire company is valued at more than $4 billion. That makes Beyond Meat (BYND) as large as many other food companies with vastly more sales. The food sector probably envies Beyond Meat’s hyper-fast growth.

But consider: The company’s valuation makes it worth multiples of all the peas in America. (Beyond Meat makes its meatless products mainly from pea protein.) Perhaps the company can pay for its raw materials with shares. That’s an interesting statistic, but should it be a red flag for investors?

Probably not. Follow along with us.

The U.S. grows about a million metric tons of peas annually, according to the Food and Agriculture Organization of the United Nations. That works out to about 45 million 60-pound pea bushels. Peas are worth about $10 a bushel, according to the Alberta Farmer Express Pulse Weekly. Peas are “pulses”—edible seeds of legume plants—just like soybeans. Soybean prices are widely tracked, and a bushel of new-crop soybeans runs you about $9 a bushel.

That makes all the peas grown in America in a year worth about $450 million, about one-eighth the value of Beyond Meat stock.

That doesn’t mean that Beyond Meat needs all of the U.S.’s peas. It can buy them from Canada and Europe too. The annual pea production in all of North America and Europe is worth about $5 billion.

Beyond Meat investors can exhale.

That $5 billion of peas represents about 9 billion pounds of protein—or 27 pounds of pea protein for every man, woman, and child in the U.S. The average American eats about 170 pounds of meat each year. That’s a far bigger number than 27, but that doesn’t mean Beyond Meat is constrained by the fertility of the earth either.

First, agricultural markets adjust, and if the world wants peas, farmers will grow peas. Second, beef doesn’t grow on trees. It takes about seven pounds of plants to make one pound of beef. Vegetable protein is more efficient. Third, there are other sources of vegetable protein, such as soybeans. The U.S. grows billions of bushels of soybeans each year, and Brazil grows about as much as the U.S. again.

Finally, don’t forget that pea protein is much cheaper than meat. It is about 60 cents a pound; wholesale beef is more than $2 a pound. There is no economic time bomb inside Beyond Meat’s business model.

If investors don’t need to worry about vegetable protein availability just yet, they may have to worry about the acquire-ability of Beyond Meat.

Editor's Choice

One way investors can justify huge valuation multiples is by assuming a larger company could swoop in to add attractive new products to its mature distribution system.

Tyson Foods (TSN) is one of the largest publicly traded meat companies in the U.S. Its market capitalization is $27 billion. The largest deal Tyson ever did was buying Hillshire Brands in 2014 for $8.4 billion. Hillshire had $4 billion in sales when the deal was struck. (In another deal, Tyson recently sold its minority stake in Beyond Meats. It may be regretting that decision today.)

Chicken processors Sanderson Farms (SAFM) and Pilgrim’s Pride (PPC) are worth in the neighborhood of $10 billion. In fact, Beyond Meat is worth more than Sanderson currently. Sanderson slaughtered about nine billion chickens in 2018, or about 56 billion live pounds. That’s a lot of birds.

Even though U.S. food companies may not be able to afford Beyond Meat there are other, large global players. The Brazilian meat giant JBS (JBSAY), for instance, is valued at more than $25 billion—similar to Tyson. Nestlé (NESN.Switzerland), a nonmeat player, is larger by an order of magnitude: It is valued at more than $320 billion, including debt.

Indeed, Beyond Meat lists raw-material sourcing as a risk in its filings: “Our future business, results of operations and financial condition may be adversely affected by reduced or limited availability of pea protein that meets our standards.”

Barron’s doubts that pea availability will sink the company, but we suggest that it work on—literally—new raw-material sources.

Write to Al Root at allen.root@dowjones.com