Keith Nunes 2019KANSAS CITY — Alan Greenspan’s quip about “irrational exuberance” comes to mind following Beyond Meat, Inc.’s May 2 initial public offering. The plant-based meat alternative manufacturer was rewarded by investors for its early-mover status into the capital markets. But Beyond Meat’s stunning market capitalization following the i.p.o. is even more remarkable when one examines the market for meat alternatives.

Beyond Meat did not create a new food category; it developed a better product compared to such meat-alternative pioneers as Kellogg Co.’s Gardenburger and Kraft Heinz Co.’s Boca Burger. Beyond Meat has done a masterful job of promoting the environmental benefits of its products compared to conventional meat.

Beyond Meat priced its i.p.o. at $25 per share for 9,625,000 shares out of about 59 million total shares. The stock soared to a mid-week high above $85 per share by the market close, giving the meat-alternative maker a market capitalization as high as $5 billion.

Beyond Meat’s early performance does not support such a lofty valuation. In its prospectus, management disclosed annual sales of $16.2 million in 2016, $32.6 million in 2017, and $87.9 million in 2018. It recorded losses in each of those years, including $29.9 million in 2018. The losses are attributable to the costs of growing market share and developing new products, according to the company.

Analysts bullish on the stock see parallels between the growth of the plant-based beverage market and the market for meat alternatives. They also see Beyond Meat’s investment in expanding manufacturing capacity giving it an advantage in acquiring market share.

But where Beyond Meat falls short is its defendable points of differentiation. The go-to-market strategies management is employing may be copied by competitors, and the company’s portfolio of intellectual property does not appear to be robust. It has been granted 1 patent and has 8 pending applications in the United States and 13 internationally.

Consumer interest in plant-based meat alternatives is not going unnoticed, either. Nestle S.A. is introducing a cook-from-raw 100% plant-based burger in the United States and Europe. Maple Leaf Foods, Inc., one of Canada’s largest food manufacturers, is introducing its Lightlife Plant-Based Burger in both Canada and the United States. On May 6, Tyson Foods, Inc., an early investor in Beyond Meat that sold its stake prior to the i.p.o., said it will be introducing plant-based meat alternatives this summer. Those three companies combined with other plant-based start-ups means competition in the meat-alternative market is about to increase significantly.

The last food company to generate such excitement from Wall Street was Blue Apron Holdings. The meal-kit delivery company went public in June 2017 for $10 per share and saw its market capitalization surge to $2 billion. Competition and an inability to scale the business by retaining current subscribers and attracting new ones pressured Blue Apron’s earnings, and on May 7 its shares were trading at less than $1.

Whether such a fate is in store for Beyond Meat remains to be seen, but the competitive wave set to inundate the market for meat alternatives would suggest Mr. Greenspan’s description will prove accurate once again.