Beyond Meat (BYND 2.21%) and Coupang (CPNG +1.07%) both disappointed a lot of investors. Beyond Meat, an early mover in the plant-based meat market, went public at $25 a share in May 2019. It skyrocketed to an all-time high of $234.90 two months later, but it's now worth about $14.
Coupang, the e-commerce leader in South Korea, went public at $35 last March. It closed at an all-time high of $50.45 a few days later, but it now trades at about $16. Both stocks plunged as investors fretted over their slowing growth, lack of profits, and high valuations. Inflation, rising interest rates, and other macro challenges exacerbated that selling pressure.
Image source: Getty Images.
But now that most of the dust has settled, should investors buy either out-of-favor growth stock as a potential turnaround play? Let's see which might bounce back and generate a five-bagger gain first.
Beyond Meat faces existential challenges
Beyond Meat initially grew like a weed as restaurants and retailers scrambled to try out its plant-based meat products. That's why its revenue surged 239% in 2019, and why its stock soared after its IPO.
But in 2020, the pandemic disrupted its business as restaurants closed down. Retailers also lost their enthusiasm for its plant-based meat products, which cost significantly more than their animal-based counterparts, as the crisis curbed consumer spending on discretionary products. As a result, its revenue rose just 37% in 2020 and 14% in 2021.
NASDAQ: BYND
Key Data Points
Beyond Meat initially believed that 2022 would be a turnaround year for the company. In the first quarter of 2022, it predicted its revenue would rise between 21% and 33% for the full year. But it slashed that guidance to between just 1% and 12% growth in August. It reset its expectations again for a decline between 9% to 14% in November.
Beyond Meat blamed that slowdown on inflation, which further eroded the market's appetite for its pricier plant-based products. It also cited competitive headwinds and a drought of new restaurant and retail partnerships. As its top-line growth cools off, it's drowning in red ink. The company's net loss widened from $53 million in 2020 to $182 million, then expanded again to $299 million in the first nine months of 2022 as it only generated $339 million in revenue.
The liquidation of its excess inventories, its usage of free samples to attract new partners, and an ill-fated expansion into plant-based jerky with PepsiCo led to its widening losses. All those challenges suggest Beyond Meat's business is dangerously unsustainable, so its stock still can't be considered a bargain at 2 times this year's sales.
Coupang's fundamentals are gradually improving
Coupang's revenue rose 93% in 2020 after the pandemic drove more people to shop online. But in 2021, its revenue only increased 54% as those pandemic-induced headwinds waned. It then grew a mere 14% year over year in the first nine months of 2022 as it grappled with inflationary headwinds. Analysts expect its revenue to rise about 13% for the full year.
That slowdown drove away a lot of investors who had expected Coupang to become a high-growth e-commerce play like MercadoLibre. But as Coupang's growth cooled off, its profitability improved. Its net loss had widened from $463 million in 2020 to $1.54 billion in 2021, but narrowed year over year to just $194 million in the first nine months of 2022 as it generated roughly $15.3 billion in revenue. It also posted its first quarterly profit -- $91 million -- in the third quarter.
NYSE: CPNG
Key Data Points
That profitability indicates economies of scale are kicking in for Coupang. The company operates fulfillment centers within 7 miles of 70% of South Korea's population. Combine that fact with its Prime-like Rocket Wow subscription service (which provides free next-day deliveries, food and grocery deliveries, free 30-day returns, access to its streaming video platform Coupang Play, and other perks) and Coupang is locking in more of its customers. It already reached 9 million Wow subscribers at the end of 2021, which represented 50% growth from 2020 and accounted for approximately half of its active customers.
Coupang probably won't become a hypergrowth e-commerce company like MercadoLibre because the South Korean e-commerce market is significantly smaller and more saturated than the Latin American market, but it could potentially generate low- to mid-teens revenue growth for years to come if it wipes out its smaller domestic competitors and consolidates the market. That's a promising outlook for a stock that trades at just 1.4 times this year's sales.
Which stock is the potential multibagger?
I'm not certain if Coupang can maintain its lead in the fragmented South Korean e-commerce sector, but it has a brighter future than Beyond Meat. After all, the plant-based meat company has yet to prove that its product isn't a passing fad. Coupang still looks cheap relative to its long-term growth potential, but Beyond Meat could fall further in this tough market. Therefore, I expect Coupang's stock to post a five-bagger gain much sooner than Beyond Meat, which might not even be around in a few more years.
