Is there a price at which Beyond Meat (BYND 0.21%) becomes too cheap to ignore, and have we now reached that point?
Shares of the plant-based meat alternative are crumbling 10% lower after fourth-quarter earnings missed Wall Street estimates and losses exploded for the period. Even as the stock craters, investors may still be wondering if all the bad news has finally been priced into Beyond Meat's shares. Let's see if there's a case to be made for buying when all the dust settles for the plant-based meat maker.
No substitute for growth
On the surface, it's hard to make a case in favor of Beyond Meat. Despite numerous retail and restaurant partnerships over the past few years, it hasn't led to an appreciable increase in sales. The pandemic clearly played a partial role in that and hurt the meat-substitute maker on the foodservice side when restaurants were all but shutdown.
Yet even in a reopened economy, Beyond Meat has failed to impress. Revenue fell 1% last quarter to $100.7 million as retail sales plummeted 20%, which it blamed on supply-chain disruptions. Losses also significantly widened, tripling to $77.7 million compared to a loss of $24.5 million even though it no longer incurred any COVID-related costs as it did last year.
Beyond Meat warned investors it really sees the picture improving this quarter by providing revenue guidance of between $85 million and $110 million. Slowing demand, five fewer shipping days, and the need to provide greater trade discounts were the primary causes for the worsening situation.
Previously, it noted its third-quarter sales weren't as bad as they otherwise would have been because it pulls sales forward from the fourth quarter, mostly in the international market. Where international revenue doubled last quarter, it was only up 22% this quarter.
Still an expensive alternative
Jefferies (JFC) analyst Rob Dickerson slashed his price target on Beyond Meat the other day, accounting for a portion of the drop in value the stock suffered ahead of the earnings report. He pointed to his channel checks in the U.S., indicating that all the trends the meat-substitute maker suffered last quarter remain fully in play this quarter, too. He dropped his price target to $55 from $90 per share which, considering where Beyond Meat is trading as of this writing (under $44 a share), still gives it upside. I might not be so enthusiastic.
Beyond Meat has made strides in making its plant-based meats priced more attractively in relation to real beef, but in many cases, it remains more expensive. Safeway, for example, advertises one pound of Beyond Meat ground for $9.99 while it sells actual ground beef for between $6 and $12 per pound.
American-style Kobe beef is still cheaper at $8.99 per pound. Even Walmart sells Beyond Meat at a premium of as much as 300% to other ground beef.
I'd argue Beyond Meat has already convinced whatever early adopters there are to make a switch to its plant-based alternatives -- and now it needs to sway a broader swath of the public. That's something it seems to be underachieving, at best.
How far is down?
Wall Street still has aggressive long-term revenue predictions for Beyond Meat, expecting sales to hit $2.2 billion by the middle of the decade, an effective quintupling of sales. Considering the slowdown that even the meat-substitute maker is experiencing, this seems like a difficult mark to hit.
Scanning the landscape, there is a long list of concerns, including geopolitical turmoil, runaway inflation, labor shortages, competition from bigger and better-financed rivals, and continued supply-chain disruptions. Given all that, Beyond Meat likely has plenty of air beneath its stock. At best, I'd wait for the company to show sustained consumer acceptance and growth before taking a stake -- though you may have a long wait.
Even with the stock plunging now, I think this food stock has a lot further to fall.