Beyond Meat (BYND 13.74%) sells meat alternatives, a niche of the food space that's garnered a lot of attention over the past few years. You can get fake burgers, fake chicken, and fake meatballs. But there's one thing that Beyond Meat hasn't offered: profits.
With inflation on the rise, investors are starting to talk a little more seriously about Beyond Meat's downside. There's plenty of room to fall if you compare it to its peers.
Nothing to see here
Beyond Meat held its initial public offering (IPO) in May 2019, so it is a fairly young company. It hasn't earned a full-year profit yet. On the one hand, it isn't surprising for a young start-up that's investing in its business to bleed red ink. On the other hand, Beyond Meat was treated like it was on a quick path to becoming a global food giant when it went public.
At one point shortly after its IPO, Beyond Meat's market cap was over $12 billion, higher than that of food industry icon Campbell Soup (CPB 1.01%). Since that peak, Beyond Meat's stock price has plunged more than 80%. A hot new product is a great thing, but eventually Wall Street wants to see a company make some money. That's particularly true in the typically boring consumer staples space.
The real risk here, however, is that investors might think that, following such a massive price decline, the stock is somehow a value play. It isn't, and a few comparisons help show why.
Beyond the hype
When Beyond Meat released second-quarter 2022 earnings, it reported that sales fell 1.6% year-over-year. The $1.53 per-share loss expanded materially from the $0.31 loss in the second quarter of 2021. And while the company reported that the pounds of non-meat it sold increased 14.6% year-over-year, that's basically a made-up metric that has little meaning if Beyond Meat can't make money selling the product it makes.
With inflation on the rise and ongoing red ink on the bottom line, the company has been focused on cutting costs. But that may not be a good enough plan for value investors, who are typically willing to accept a few warts.
What about the value here? With no earnings, you can't use the price-to-earnings ratio to value Beyond Meat. But a look at the price-to-sales (P/S) ratio is fairly telling. The company's P/S ratio is just shy of 4.9 today. While that's down from astonishing levels above 60, it is still well above those of other food makers.
For example, General Mills (GIS 1.28%) has a P/S ratio of about 2.5. Campbell's ratio is roughly 1.8. And Kellogg's (K 1.46%) is just shy of 1.8. These aren't unusually low numbers -- they are actually fairly normal. The strange number here belongs to Beyond Meat, and all three of the other companies are profitable entities.
But you don't have to use the earnings statement to see the problem; you can also use the balance sheet. Beyond Meat's price-to-book-value multiple is nearly 38 right now. General Mills, Campbell Soup, and Kellogg come in at 4.4, 4.5, and 6.3, respectively. Once again, Beyond Meat is the expensive outlier by a wide margin.
The end game
When all is said and done, despite Beyond Meat's massive stock decline, conservative investors should probably still view it as overvalued. It appears that a lot of hype remains priced into the shares. And yet, there is something potentially exciting that some investors might be thinking about now.
With less than $500 million in 2021 revenue, Beyond Meat is dwarfed by General Mills, Campbell Soup, and Kellogg. Large food makers have a long history of buying hot, new brands and using their distribution strength to grow them. For this reason it wouldn't be surprising to see Beyond Meat get acquired at some point, which would probably be a good outcome for the brand, if not investors.
That highly uncertain prospect, however, is not a particularly good reason to buy the stock. In fact, given the top-line decline in the second quarter, a larger food name might want to see the valuation fall even further before taking on the risk of buying Beyond Meat and its modest portfolio of non-meat products.