I'll admit I thought the plant-based meat movement was more fad than sector shift during the early stages. It has become clear this has staying power.
I think the predictions of meat going away by 2040 are ridiculous. You can pry bacon from my cold, dead hands. Still, the sales and adoption of plant-based food and meals continues to climb.
The compound annual growth rate (CAGR) has hovered around 13% since 2017, and while that may not seem like much, we're talking about a $55 billion market and the alternatives (traditional milk and meat) are not growing nearly as fast. Animal-based milk was down 3.9% during that time period and meat was only up 2.2%; those percentages compare to plant-based milk up 6.8% and plant-based protein up 13.1%.
The first name investors turn to is Beyond Meat (BYND) ; however, its market cap has already hit $7 billion in a segment of the market (meat replacement) with a total addressable market not much higher than that value. Meanwhile, Impossible Burger remains private, so public investment does not exist.
Another name to consider is Tattooed Chef via Forum Merger Corp. (FMCI) . These two will be joined in union likely during the third quarter. With FMCI trading around $16 that values Tattooed Chef at only $920 million.
At the end of July, Tattooed Chef reported strong preliminary revenue for the first half of 2020. Results were 97% higher than the year-ago period as revenue reached $65.2 million. Second-quarter revenue of $32 million slightly trailed first-quarter revenue of $33.2 million, but year-over-year growth was slightly better in the second quarter. Back in June, when the merger was announced, Tattooed Chef projected around $148 million in 2020 revenue, so there is still a strong possibility that number is hit.
Although the merger between Forum Merger and Tattooed Chef is not complete, I do expect it to go through. As Tattooed Chef products to continue to find a home and do well in popular big-box stores such as Costco (COST) Walmart WMT and Sam's Club, we could see growth accelerate once it implements and becomes efficient with direct-to-consumer offerings. In comparison to Beyond Meat with its 20x price-to-sales ratio, FMCI projects to be in the 6.25x to 6.75x range.
These are the two big public pure-play plant players at present (say that five times fast). And I believe Tattooed Chef offers the superior risk versus return, but there would be nothing wrong with owning both if you believe in the sector. Furthermore, aggressive traders could look north of the board to the newly listed Modern Meat (SUVRF) as a possible third leg to the stool.
It's fair to note that Modern Meat is a thinly traded name with volume currently nonexistent on the OTC listing (SUVRF), so if you are interested, buy this $100 million company on the Canadian Securities Exchange (CSE) under the ticker MEAT.CA.
This has the feel of a very early-stage Beyond Meat meets Tattooed Chef. While it hasn't broken into the big-box stores, Modern Meat management is currently in talks with Costco and Whole Foods for entry.
The company has found its way into many small and midsize grocers in Canada. It offers burgers, crumble, meatballs and crab cakes all in the plant-based form along with other complimentary products. Admittedly, revenue projections are a bit varied as the company seeks to expand its current facilities. The goal is to increase production space by 5,000 to 15,000 square feet. The result would be 2021 revenue in the range of $5 million to $12 million. From there, it has the potential to double every year for the next few years.
Again, this one lives on the aggressive side of the investment fence, but with so few pure-play plant-based food companies in the sector it warrants at least a place on your watch list, if not a small position in the portfolio.
In my view, FMCI merits more than consideration and deserves a place in most growth portfolios.