Beyond Meat's (BYND 0.16%) stock hit an all-time high of $234.90 in July 2019 as the bulls gushed over the growth potential of its plant-based meat products. But today, it trades at about $21. Some contrarian investors might be tempted to nibble on Beyond Meat at these depressed levels, but I believe it's still smarter to sell it for 10 simple reasons.
1. Its growth has stalled out
Beyond Meat expects its revenue to grow just 1%-12% this year, compared to its 14% growth in 2021, 37% in 2020, and 239% in 2019. It blames that slowdown on inflation, which has curbed the market's appetite for pricier plant-based meat products. Its sales in Europe also fell sharply in the first half of 2022 and erased all its growth from 2021.
Image source: Beyond Meat.
2. It faces too many competitors
As consumers lose their appetite for plant-based meat, more competitors are splitting up the shrinking market. Impossible Foods, which hasn't gone public yet, continues to pull restaurants and retailers from Beyond Meat.
The meatpacking giant Tyson Foods launched its own plant-based meat products in Asia last year, while Kellogg plans to spin off its own plant-based meat division, Morningstar Farms. Beyond Meat doesn't have much of a moat against these big competitors.
3. It's losing its pricing power
The combination of inflation and competition has significantly reduced Beyond Meat's pricing power. As a result, its year-over-year growth in revenue per pound flatlined and fell sharply over the past year.
|
Period |
Q2 2021 |
Q3 2021 |
Q4 2021 |
Q1 2022 |
Q2 2022 |
|---|---|---|---|---|---|
|
Growth in revenue per pound (YOY) |
0% |
0% |
(7%) |
(10%) |
(14%) |
Data source: Beyond Meat. YOY = year over year.
It mainly blamed that deterioration on markdowns, sales to liquidation channels, and currency headwinds from a strong dollar. All those challenges should persist for the foreseeable future.
4. The plant-based meat craze is over
Beyond Meat initially grew like a weed because restaurants and retailers were eager to test out its plant-based meat products. But that enthusiasm waned throughout the pandemic, and it's continuing to fade as inflation pushes consumers back toward cheaper meat-based products.
McDonald's notably ended its test of the McPlant in the U.S. this summer. Other early adopters -- including Jack in the Box's Del Taco, TGI Fridays, and Inspire Brands' Dunkin' -- have also gradually stopped selling Beyond Meat's products. Beyond tried to fill that growing void with its Planet Partnership joint venture with PepsiCo, which launched Beyond Meat Jerky this March, but it's now selling that jerky at much lower margins than its other products.
5. Its gross margins are crumbling
All those problems caused Beyond Meat's gross margins to drop from 30% in 2020 to 25% in 2021, then plummet to negative 2% in the first half of 2022. During the second quarter conference call, CFO Phil Hardin predicted the company's gross margins would remain "well below historical norms" throughout the second half of the year.
6. Its net losses are widening
Beyond Meat has never turned a profit. Its net loss widened from $12 million in 2019 to $53 million in 2020, then more than tripled to $182 million in 2021. On an adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) basis, its net loss narrowed from $25 million in 2019 to $12 million in 2020, but widened to $113 million in 2021.
Beyond Meat plans to lay off 4% of its workforce to stabilize those losses, but those layoffs will only reduce its annual spending by about $8 million. It needs to trim a lot more fat to stop the bleeding; analysts expect its net loss to widen to $329 million this year as its adjusted EBITDA loss more than doubles to $257 million.
7. Its liquidity is drying up
As Beyond Meat's losses widen, its cash reserves are drying up. It ended the second quarter of 2022 with just $455 million in cash and equivalents, compared to $733 million at the end of 2021.
8. It will need to take on more debt
Beyond Meat already raised about $1 billion with a convertible debt offering last March. Those notes account for most of its $1.16 billion in long-term liabilities. These notes don't bear any interest, but Beyond Meat will need to pay off that principal within the next three and half years. Considering how quickly it's been burning through its cash, it will likely need to raise more debt at unfavorable rates to pay off those notes.
9. Its stock still isn't cheap
Beyond Meat's stock has fallen below its IPO price of $25, but it still trades at nearly three times this year's sales. That price-to-sales ratio would be low for a growing company, but it's arguably too high for one that is grappling with a severe slowdown and plummeting margins.
10. Its insiders are selling
Lastly, Beyond Meat's insiders sold nearly 28 times as many shares as they purchased over the past three months. That chilly insider sentiment reinforces the notion that it's not the right time to buy this burnt-out stock.
