Time to Finally Buy This Alternative Meat Stock?

Beyond Meat (NASDAQ:BYND) is among the most recognizable names in the alternative meat industry. Despite the brand’s popularity, Beyond Meat’s stock has shed over 40% of its value in the last year.

That relative underperformance has created a potential buying opportunity, so is BYND stock a buy?

Top Line Slide Is Concerning

Beyond Meat’s Q3 earnings report saw several negative developments for investors. To begin with, total revenues declined 8.7% year-over-year to $75.3 million. While the company’s losses improved compared to the year-ago quarter, Beyond Meat still reported a net loss of $1.09 per share.

The revenue drop reflected in the Q3 report is part of a longer trend of falling sales that has plagued Beyond Meat for the past two years. The company’s quarterly revenues peaked in Q2 of 2021 and have been trending steadily downward ever since.

One of the most worrisome pieces of information in Q3’s report was the fact that Beyond Meat’s US sales contracted by over 30%. Despite strong international growth, the company will likely continue to struggle with falling sales if it cannot turn its performance in the core US market around.

Beyond Meat’s earnings have fared little better. While the company experienced a period of marginal profitability in late 2019 and early 2020, Q3 marked the 14th consecutive quarter of losses. Net margins have also deteriorated, falling to a trailing 12-month rate of -71.5%.

The company also has no apparent near-term path to profitability. Although adjusted earnings are expected to improve over the coming year, analysts still expect Beyond Meat to lose over $2.50 per share over the next 12 months. Following multiple years of relatively weak performance, this projection is likely far from enough to rebuild investor enthusiasm for Beyond Meat.

Is Beyond Meat Stock Undervalued?

According to analysts, Beyond Meat stock is not undervalued at all but is in fact, overvalued by 35%. 

Although Beyond Meat has already lost much of its value this year, analysts believe that the stock may not yet have found its bottom.

The median 12-month price forecast for BYND stock is $5.83, implying a loss of over a third from the most recent price

An even more telling illustration of Wall Street’s outlook on Beyond Meat is the fact that the most bullish price forecast is $9, barely above the current market price.

Partly because of its recent difficulties, Beyond Meat trades at just 1.8 times sales. If the company were still growing, this could be a sign of undervaluation.

In light of contracting revenues, a sustained trend of losses and decaying net margins, however, Beyond Meat is more likely to be a dangerous value trap than a hidden gem.

Beyond Meat’s valuation is also impacted by its debt load of about $1.1 billion. Compared to the $232.8 million the company has in its cash stockpile, this debt level is understandably concerning to investors.

Due in large part to this enormous debt load, the book value of Beyond Meat is currently a negative $3.19 per share. As such, the company is facing financial difficulties as well as the ongoing deterioration of its business performance.

Lower Interest In Alternative Meat Is Hurting

Beyond Meat’s largest challenge is the waning interest in alternative meat products among consumers.

With prices rising and negative perceptions of plant-based meats prevailing, Beyond Meat and its competitors have limited opportunities to make further inroads among the general public. This slowdown in consumer enthusiasm has contributed to Beyond Meat’s revenue slowdown and will likely continue to put pressure on the company.

Beyond Meat is also competing with other companies for the consumers who do regularly buy meat alternatives. With a growing group of competitors, Beyond Meat could be left fighting for an ever smaller share of an already shrinking market. This could further reduce the company’s chances of achieving significant revenue growth or reaching sustained profitability.

A final problem for Beyond Meat is the likelihood that the company will need to raise additional funding in the coming year. With its cash reserves being eaten away by ongoing losses, Beyond Meat will likely require additional capital to invest in further growth initiatives.

The problem, however, is that capital must either be raised by issuing additional shares or taking out debt at today’s high interest rates. In either event, the need to raise further funding will likely put downward pressure on share prices and aggravate what is already a worrisome set of risks for investors.

In a worst-case scenario, Beyond Meat could face eventual bankruptcy. Even though the company’s cash reserves can keep it going for quite some time, consistent losses and no road to profitability leave the company with little in the way of long-term prospects. Eventually, Beyond Meat will either have to generate profits from its business, take on more debt, issue a secondary or worse, go under.

Is Beyond Meat a Buy?

At one time, Beyond Meat appeared to be the emerging dominant company in a fast-growing food product category. As consumer interest in meat alternatives has dropped off, though, the company’s prospects have become much less enticing to investors. With sales slumping and no apparent path to profitability on the immediate horizon, Beyond Meat appears quite likely to underperform the market for the foreseeable future.

Today, Beyond Meat’s best hope for a stock rally is likely a short squeeze triggered by heavy short interest in the company. While such a squeeze is far from impossible, investors would be unwise to bank on it.

Potential volatility notwithstanding, Beyond Meat’s fundamentals make it unattractive as an investment option from a fundamental perspective. This fact is already apparent in Beyond Meat’s dwindling share prices and comparatively low institutional ownership.

Technically, the share price is showing signs of forming a cup-and-handle, which would be bullish. If you fall into the category of examining technicals alone, certainly BYND meat is worth a closer look but don’t bet on the financials backing up the technical story.

Barring radical improvements in overall business performance that give the company a reasonable chance of becoming profitable, Beyond Meat is likely to continue sliding.

Given the high interest rates currently being paid on treasuries and the many attractive investment options in today’s stock market, it’s difficult to make a compelling argument for risking capital on a company as distressed as Beyond Meat.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.