Are plant-based food companies a good investment?

By Patricia Miller

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The rise in vegetarians, vegans and flexitarians has led to an increase in plant-based food offerings - but do meat-free companies offer a good investment?

The rise in vegetarians, vegans and flexitarians, those who consciously enjoy meat-free days, has led to an increase in plant-based food offerings. Becoming a flexitarian is proving to be a healthy compromise between being a full-time carnivore or a vegetarian, and it’s fuelling the drive for companies to produce an improved range of vegan and vegetarian offerings.

It’s important to note that not all plant-based food is vegan. Occasionally plant-based foods can contain ingredients sourced from animals.

While the Covid-19 pandemic has reinforced the importance of health and wellbeing, an increasing drive to save the planet from the climate crisis is driving the desire to eat less meat.

As the world’s population explodes, plants are thought to be a healthier and more efficient way of feeding the masses. From start-ups to publicly listed giants cashing in on the trend, investors are keeping a keen eye on plant-based food companies and asking: should I invest in plant-based food stock?

Fundamentals of plant-based food stocks

San Francisco-based Eat Just Inc (not to be confused with London’s Just Eat Takeaway.Com (LSE:JET), has indicated its intentions to go public. Speculation in July 2021 was that the company was planning to go public at a hefty valuation of $3 billion. It is expected that it will go public in Q4 of this year.

The total VC investment so far into Eat Just has been $440 million, following a $220 million funding round led by Qatar Investment Authority back in May.

Eat Just is a food technology company working with rural farmers, Michelin-starred chefs, and leading scientists to develop sustainable alternatives to traditional foods. Its Just Egg range has been doing a roaring trade and has sold the equivalent of 100 million eggs.

Eat Just is looking to expand and intends to build its first plant protein facility in Singapore. It will operate the facility when complete and intends to get it up and running using funds from an investment group led by Proterra Investment Partners Asia Pte.

Possibly the most well-known plant-based company in the US, Beyond Meat (NASDAQ: BYND) is doing a roaring trade and enjoying mass market success. Beyond Meat listed on the NASDAQ in May 2019 and its share price has been on a roller-coaster ride.

Opening with a share price of $66.79 back in May 2019, this has now increased to $115.09 and has a market capitalization of $7.52B. Beyond Meat has brought out an impressive range of plant-based meals that look convincingly close to the real thing.

Its signature dish Beyond Burger has the texture of beef but without genetically modified organisms (GMOs), soy, or gluten. Its extensive range also includes sausages, minced beef and meatballs, which can all be found in major and independent grocery stores, as well as many restaurants.

Other plant-based food companies that are being watched by investors include Ingredion (NYSE: INGR), Bunge (NYSE: BG) and Hain Celestial Group (NASDAQ: HAIN).

What is the bull case for plant-based food companies?

As consumers around the world become increasingly conscious of the health and environmental benefits of eating less meat, the demand for plant-based foods is set to keep on rising. Supermarket shelves are filling up with a variety of plant-based and vegan product lines, with many of the major retailers offering their own plant-based lines.

Once a limited offering, the developments in plant-based food in recent years have helped secure its place in our kitchens and have made the likes of Eat Just and Beyond Meat a household name. Recent documentaries, such as The Game Changers, on streaming giant Netflix have also helped raise awareness of the benefits of reducing our meat consumption.

The rise in popularity of adopting a more plant-based diet is evident, recent research by YouGov shows that 23% of UK adults and 20% of US adults now follow either a flexitarian, vegetarian, pescatarian or vegan lifestyle.

While becoming a flexitarian is still a fairly new concept, it is a trend that is expected to grow and if it does so will the profits of plant-based food companies, making them a worthwhile stock to watch.

What is the bull case for plant-based food companies?

As the rise in demand continues, so will the competition. With more and more plant-based food companies popping up and with supermarkets and major food brands launching their own plant-based ranges, it could spell trouble for the likes of Beyond Meat and other early plant-based food companies.

Another concern for the future of plant-based food companies is difficulty in sourcing ingredients. For example, one of Beyond Meat’s and many other manufacturers of plant-based foods, main ingredients is pea protein which comes directly from the yellow pea. Typically this is sourced from only a handful of countries, such as the US, Canada, France and China.

The harvest of this crop can be impacted by a number of factors from adverse weather conditions to natural disasters. Such events could lead to supply constraints and a jump in the price of ingredients. Both of which could negatively impact their profits.

Should I invest in plant-based food companies?

The key to building a successful business in this increasingly competitive sector is producing the tastiest, healthiest, and most sustainable range of food choices around. Billions of dollars are pouring into the industry, and it looks it may be a promising sector to be investing in too.

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Author: Patricia Miller

This article does not provide any financial advice and is not a recommendation to deal in any securities or product. Investments may fall in value and an investor may lose some or all of their investment. Past performance is not an indicator of future performance.

Digitonic Ltd, the owner of ValueTheMarkets.com, does not hold a position or positions in the stock(s) and/or financial instrument(s) mentioned in the above article.

Digitonic Ltd, the owner of ValueTheMarkets.com, has not been paid for the production of this piece by the company or companies mentioned above.