Beyond Meat (BYND 2.79%) disappointed investors with its dismal second-quarter report in early August, which featured weak guidance for the rest of the year and plans to lay off 4% of its workforce. But over the past two months, things got even worse for the plant-based meat maker as it made the news for all of the wrong reasons.
First, Chief Operating Officer Doug Ramsey was arrested in late September for an alleged assault at a college football game. Ramsey was subsequently suspended and left the company earlier this month.
Second, Beyond Meat announced that it would lay off another 19% of its workforce by the end of the year. Chief Growth Officer and North American President Deanna Jurgens was laid off as part of that restructuring, while CFO Phil Hardin resigned ahead of that announcement.
Lastly, Beyond Meat reduced its full-year outlook for the second time this year. It now expects its revenue to decline 9% to 14% in 2022, compared to its August forecast for 1% to 12% growth and its May forecast for 21% to 33% growth. That barrage of negative news, along with the broader market's sell-off, sent the stock tumbling to an all-time low of about $13.
That's well below its IPO price of $25 and all-time high of $234.90, so is there any hope left for this struggling company?
What happened to Beyond Meat?
Beyond Meat initially dazzled the bulls with its incredible growth rates when it went public in May 2019. Its revenue rose 170% in 2018 and surged 239% in 2019, but that early growth was primarily driven by curious restaurants and retailers testing out its plant-based products instead of stable sales to loyal customers.
However, Beyond Meat's revenue only rose 37% in 2020 as the pandemic spread and shut down restaurants. Retailers also became hesitant to test out its products throughout the crisis. That slowdown worsened with just 14% revenue growth in 2021, even as the pandemic-related headwinds passed.
CEO Ethan Brown blamed that slowdown on a "temporary disruption in U.S. retail growth" for both its "brand and the broader category" of plant-based meat products. During the fourth-quarter conference call, Brown predicted the company's growth would accelerate to "higher levels" again in 2022 as more restaurants and retailers launched fresh trials for its products.
But that didn't happen this year. Instead, inflation caused consumers to buy more regular meat instead of pricier plant-based alternatives. As a result, businesses became even more reluctant to test out Beyond Meat's products.
Early adopters like Jack in the Box's Del Taco, TGI Fridays, and Inspire Brands' Dunkin' phased out Beyond Meat's products, presumably because they weren't popular enough, while a growing number of competitors -- including Impossible Foods, Tyson Foods, and Kellogg's Morningstar Farms -- have been gradually fragmenting the shrinking plant-based meat market.
Beyond Meat isn't profitable yet, and its net loss more than quadrupled year over year to $198 million on just $256 million in revenue in the first half of 2022 as it liquidated its inventories. Those losses were exacerbated by the launch of Beyond Jerky, which failed to meet its initial sales expectations, through a joint venture with PepsiCo.
Can Beyond Meat save itself?
Beyond Meat now claims that by laying off nearly a fifth of its remaining staff and streamlining its business, it can reduce its total operating expenses by about $39 million over the following 12 months and achieve "cash flow positive operations within the second half of 2023."
But that's a tall order for a company that has never been profitable and is now bracing for its first annual sales decline as a public company. It's also hard to take that forecast too seriously after Beyond Meat reduced its full-year revenue guidance twice this year and lost three of its key executives.
With a market capitalization of $850 million, Beyond Meat is still valued at about two times its latest revenue guidance for 2022. That price-to-sales ratio seems low, but struggling companies often trade at less than one times their annual sales if investors believe their business models are broken.
Therefore, Beyond Meat's stock might seem cheap if you believe its growth will accelerate again after inflation cools off. But if you believe Beyond Meat will be rendered obsolete by a growing number of competitors in its shrinking niche market, then its stock is still overvalued.
I believe the bearish argument makes more sense, and that Beyond Meat isn't the kind of stock you want to own as rising interest rates crush the market's more speculative and unprofitable companies.