Beyond Meat (BYND -0.17%) sells meatless products that can appeal to consumers looking for alternative food options. However, despite promising demand, the business has struggled, and shares of the company have been crashing of late. There are many plant-based products for consumers to choose from, and Beyond Meat's high-priced products simply haven't been winning people over.
This is a business that today is facing significant challenges. Here are three reasons why I would stay away from Beyond Meat's stock.
1. Sales are declining; new product launches aren't helping
Beyond Meat released its third-quarter earnings results earlier this month (period ended Oct. 1), where net revenue was just $82.5 million. That's a steep decline from the $147 million that it reported just three months earlier and the lowest the top line has been in years.
BYND Revenue (Quarterly) data by YCharts
Despite launching multiple new products over the past few years, including meatless chicken tenders and jerky, that hasn't been enough to keep revenue from falling.
The company blamed the underwhelming Q3 revenue numbers on a "challenging macro environment," and the reality is that might not be improving next year. Inflation remains high at over 7%, and there are concerns a recession could be coming in 2023.
Both of those factors could continue to weigh down Beyond Meat's meatless products, which generally sell at more expensive prices than regular chicken and meat products.
2. Beyond Meat is burning through loads of cash
Another significant worry is that Beyond Meat is also consistently reporting an outflow of cash from its day-to-day operating activities. That's before any investments into plant, property, and equipment. If the business is burning through cash just from its regular operations, that suggests that what it's doing today isn't sustainable in the long run, as eventually it will run out of money.
BYND Cash from Operations (Quarterly) data by YCharts
As of Oct. 1, Beyond Meat's cash and cash equivalents totaled $390.2 million. If it were to keep burning through $50 million in cash, as it has averaged over the past few years, that would mean its current cash balance would be enough to last for just under eight quarters -- and that's with spending nothing on capital expenditures. Cash flow can fluctuate due to working capital, but worsening financials make it probable that the company's cash burn could worsen next year.
Beyond could of course dip into debt or issue shares, but neither of those are attractive prospects for investors.
3. Its margins remain abysmal
Beyond Meat is in a tough situation because it needs to grow its sales to help improve its overall financials. But its margins are also awful, suggesting that even that might not be enough and that price increases may be necessary to strengthen its gross margin and, in turn, boost its profit margin.
BYND Gross Profit Margin (Quarterly) data by YCharts
A negative gross margin is a huge red flag and one that investors shouldn't ignore. There's a lot of work for the company to improve its financials, and I'm not confident Beyond Meat can accomplish it all. Next year could be a tough one for the stock.
Investors shouldn't assume Beyond Meat stock has hit a bottom
Beyond Meat's stock is near its 52-week low, and year to date, it has declined close to 80% (the S&P 500 has fallen by roughly 18%). However, the stock could go lower as the business faces a tougher road ahead, one that may involve steeper losses and lower revenue.
As promising as this growth stock once was, Beyond Meat's business is in trouble, and even investors willing to take on risk should think twice about buying it.
