Beyond Meat (NASDAQ:BYND) once appeared to be on the verge of popularizing an entirely new type of food. The company’s plant-based meat alternative made its way into both fast food restaurants and home kitchens, aided by a trend of consumers making healthier and more environmentally friendly choices.
This year, however, the stock has lost over 80 percent of its value, and the company is struggling to control its losses. While some dedicated investors believe that Beyond Meat is primed for a recovery, others suggest that the company could be on the ropes. Will Beyond Meat stock recover?
Why Has Beyond Meat Dropped?
The largest factor in Beyond Meat’s difficulties has been inflation. Plant-based meat alternatives are typically more expensive than equivalent animal-based products, causing demand to soften as inflation spikes. This has translated into deep losses and shrinking revenues, driving share prices down.
In addition to softer demand among loyal consumers, meat alternative brands are also struggling to break into the broader consumer market. Despite some early successes, the idea of replacing meat with plant-based alternatives seems to have hit a wall. Without widespread acceptance among consumers, the growth prospects for Beyond Meat and its competitors could be much lower than previously believed.
Beyond Meat Earnings, Revenue and Growth
In Q2, Beyond Meat reported $147 million in revenues, 1.6 percent lower than the year-ago quarter. While total pounds of the company’s plant-based meat alternative sold increased by 14.6 percent, revenue per pound was down 14.2 percent. International revenues were especially negative, with sales from foreign channels dropping by 17 percent.
Beyond Meat’s net loss for the quarter was $97.1 million, equating to -$1.53 per share. It’s worth noting that Beyond Meat does have a plan to stem its losses.
Under the plan, the company will shed approximately one-fifth of its workforce. All told, the move is expected to reduce operating expenses by $39 million over the next year. Even this, however, would be far from enough to put the company into profitable territory, given its current losses.
The company also appears to be facing a choppy future in terms of growth. With revenues falling even as more of Beyond Meat’s product is sold, it’s clear that growth may not be a simple matter. Analysts currently expect a surge of growth in excess of 30 percent next year, followed by much slower growth afterward.
Overall, Beyond Meat’s expected 5-year annualized growth rate is just 10 percent.
Beyond Meat Target Price and Valuation
The target price for Beyond Meat over the next 12 months is $14, representing an upside of 10.9 percent from the most recent price of $12.63. However, the range of price forecasts is so large that investors should be cautious about assigning too much weight to any of them.
Forecasts range from $5 to $35, suggesting that there is very little consensus among analysts where this stock is concerned.
The concerns about Beyond Meat are also amplified by its valuation. While the stock trades at just 1.77 times sales, its earnings yield is an abysmally low -41.24 percent.
Cash flow is also -$2.46 per share, nearly 20 percent of the current share price. These factors suggest that Beyond Meat could still be substantially overvalued.
Even worse for the company’s value is its debt load. Today, Beyond Meat’s debt-to-equity ratio is 27.6. With such heavy debt burdens, the company looks far less attractive than it did a few years ago.
Finally, Beyond Meat’s return on equity and overall margin make it difficult to argue for a fair valuation. ROE stands at -400 percent, while the net margin is -71.8 percent. Overall, the company’s struggles make it an unattractive value, even though its price-to-sales ratio is relatively low.
Will Beyond Meat Recover?
Ultimately, a full recovery for Beyond Meat seems very unlikely. Although the company will probably regain some ground over the next year or two, the days of triple-digit share prices appear to be behind it.
Investors who have already taken heavy losses may want to hold out in hopes of higher prices, but this strategy likely won’t make up for the massive drop the stock has seen this year.
While inflation is expected to slow sometime next year, the chances of a recession also appear to be rising. This will likely extend consumer demand issues, making it difficult for Beyond Meat to return to positive earnings.
Although labor cuts will reduce its losses, those cuts can only go so far before affecting the company’s ability to function properly.
BYND Insider Sales
The lack of broader interest in meat alternatives is also a severe concern for Beyond Meat and its loyal investors. In 2020, the company was valued at 100 or more times its earnings. The kind of growth needed to justify such a valuation would have required American consumers to widely adopt plant-based meat substitutes.
Insider trades also reveal considerable doubt of a recovery. For multiple years, insider sales have vastly outnumbered insider buys. In the last 12 months, all insider trades of Beyond Meat stock have been sales, though it’s worth noting that the volume of these sales only amounted to $823,000.
A final factor that could reduce Beyond Meat’s chances of recovering is the emergence of competition within its industry over the past few years.
At one time, Beyond Meat had an effective moat as the only well-known and widely available meat alternative. Today, the market has grown far more competitive. With several companies selling products to a consumer base that isn’t expanding rapidly, there’s less room for Beyond Meat to capture market share.
At the end of the day, Beyond Meat appears to be what Warren Buffett has occasionally described as a “cigar butt stock.” There’s a good chance that the company will have a decent spike in growth next year, generating solid returns in the process.
Over the longer haul, however, its prospects don’t appear particularly positive. Investors who plan to buy and hold can likely find much better options in today’s market.
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