What happened
Shares of Roku (ROKU 1.91%), Peloton (PTON -0.97%), and Beyond Meat (BYND -0.47%) were all down more than the market today, each falling more than 5% by mid-day, before Roku recovered to a 3.2% loss, Peloton fell 6.2%, and Beyond Meat dropped by 3% as of 3:25 p.m. EDT.
There wasn't any material news out of these companies today. However, all are affected by general economic conditions. A slowing economy could slow down ad sales, which would affect Roku's revenue, as well as purchases of large-ticket discretionary items like a Peloton bike. Plant-based meat has traditionally been more expensive than traditional meat, although Beyond Meat is working to lower prices. Meanwhile, each of these companies is also seeing rising costs due to inflation.
Unfortunately, two factors were working against these consumer discretionary names on the macroeconomic front today.
So what
Today, JPMorgan & Chase CEO Jamie Dimon said businesses should prepare for a "hurricane" on the horizon due to the Federal Reserve's beginning of quantitative tightening and the commodity crunch brought on by the war in Ukraine. An "economic hurricane" is probably not the most conducive environment in which consumers might splurge, so it's no wonder these three stocks were hit on those comments.
At the same time, May U.S. manufacturing data actually came in better than expected today. One might think this is a good thing which flies in the face of Dimon's comments. However, hot economic data also caused the 10-year Treasury bond yield to rise 10 basis points to 2.94% as of this writing.
Rising long-term rates tend to hurt long-duration assets such as growth stocks, which have much of their profits well out into the future. That's true of all three of these stocks. Roku currently trades at 92 times earnings, while Peloton and Beyond Meat are still printing large losses. Peloton and Beyond Meat may have also been suffering from some mismanagement. The companies overextended themselves during periods of high growth during the pandemic only to see that growth dry up as the economy reopened.
Image source: Getty Images.
Now what
Each of these three stocks has been beaten down severely, so they may be tempting for those looking to bet on an explosive turnaround. Of the three, Roku is clearly the least risky; it's still profitable while also showing strong revenue growth. Moreover, if Netflix goes to an ad-supported model, as it has said it might, that could mean more platform dollars for Roku in the future. Still, at 92 times earnings, the stock is still far from what one would call "cheap" if rates continue to rise.
Next up would be Peloton, which has perhaps the most upside for the potential risk. Peloton has been a disaster recently. The company bought way too much bike inventory during the pandemic only to see demand dry up as the world reopened. Still, the company is growing its subscriber base, which is the more profitable segment, with subscription revenue up 55% last quarter and rising gross margins of 68.1%. Meanwhile, new CEO Barry McCarthy is implementing a big cost-savings plan that could reduce costs by $800 million by fiscal 2024. McCarthy just took over in March, so perhaps his plan could stabilize the stock, which is down more than 91% from its all-time high.
Finally, Beyond Meat seems to be spending lots of money on international and product expansion even as its revenues are stagnating. While there is a lot of noise around the pandemic, it's also possible consumers just aren't ready to adopt plant-based meat as quickly as Beyond Meat anticipated. Additionally, competition from Impossible Foods and others could be weighing. At least Peloton realized it has to cut costs. It's unclear if Beyond Meat's bold investments will pay off, so it's the riskiest of the three.
