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Why Beyond Meat Fell 26% in March

By Jon Quast – Apr 2, 2020 at 1:18PM

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Its restaurant sales will be challenged because of COVID-19, but grocery sales could mitigate further downside.

What happened

Shares of Beyond Meat (BYND -1.80%) lost 25.7% of their value in March, according to data provided by S&P Global Market Intelligence. Investors are understandably concerned about revenue, since the majority of this company's revenue is generated from the restaurant industry -- an industry largely on hold due to efforts to stop COVID-19 from spreading further.

But Wall Street was already turning on Beyond Meat for another reason. The company gave forward guidance as February ended, stating it will grow its top line at the expense of profits in 2020.

A hamburger made with Beyond Meat

Image source: Beyond Meat.

So what

Beyond Meat saw its restaurant and food service segment revenue surge an incredible 312% in 2019 as it forged fresh partnerships with restaurant chains throughout the year. This growth means sales of its plant-based patties in restaurants accounted for 59% of total revenue in the fourth quarter of 2019. Now with restaurants sales falling around the U.S., it's fair to wonder how hard Beyond Meat's revenue will be hit in coming quarters.

But there may be more on investors' minds. While a lot has happened in the month since he was interviewed by Yahoo! Finance, Beyond Meat CEO Ethan Brown said the coronavirus pandemic isn't enough to keep the company from expanding into China in 2020. In fact, forward guidance is light on profits as the company spends on international growth and new product development to fuel top-line growth. But it's possible that strategy will backfire if we enter a global recession.

Now what

The potential impact COVID-19 will have on Beyond Meat is complex. It's possible sales from grocery stores will increase enough to mitigate the loss of restaurant revenue. Right now, the company's factory is still open for business and working hard to restock grocery stores. According to the company, retail sales surged 248% year over year during the first 12 weeks of 2020.

However, any new restaurant partnerships are likely on hold for now. Restaurants typically launch Beyond Meat branded menu items in an effort to boost comparable sales, but with locations closed, it's not the right time for promotional items. That could also drag on its revenue growth rate. These risks put its 2020 revenue guidance of $500 million at the midpoint in question.

That said, with the stock trading near new all-time lows, it may be time to take a small nibble of this company, which still has big long-term potential.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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