If you like stocks on sale, you'd be hard pressed to find a bigger discount than what's on offer with Beyond Meat (BYND +5.91%). The plant-based protein specialist shed more than 80% of its value in 2022 and the stock is just a tiny fraction of heights seen in 2020 when it topped $180 per share.
When a stock falls like this, there are usually reasons beyond simply a temporary growth slowdown or a bad quarter's earnings. With that red flag in mind, let's look at whether the stock might be oversold right now to the point that it makes sense as a long-term addition to your portfolio.
The struggling business
There's no doubt Beyond Meat is dealing with challenges that threaten its entire business. Demand is falling hard as consumers tilt spending toward more affordable protein options. Shoppers don't appear to be as eager to try out novel introductions, either, like the company's recent jerky product.
Sales are down just 7% through the nine months that ended in early October, but that figure doesn't tell the true story of Beyond Meat's demand struggles.
NASDAQ: BYND
Key Data Points
Revenue fell 23% in the most recent quarter despite the company's price slashing. Reduced prices drove gross profit margin into negative territory, meaning it cost Beyond Meat more to produce its products than it was able to recoup directly from shoppers. And yet it still couldn't protect its sales base.
Financial issues
As you might expect, these poor sales trends sparked big financial losses. Net loss was $101 million last quarter, or more than 100% of sales. The cash picture looks just as bleak. Beyond Meat burned through $270 million in the past nine months compared to a $191 million loss in the prior-year period when growth was much stronger.
The good news is that management is taking aggressive actions aimed at righting the financial ship. Beyond Meat is cutting about 20% of its workforce and scaling back its manufacturing footprint to better align with current demand trends.
Executives believe these moves will get the company back into a positive cash flow position by late 2023. "Beyond Meat is executing a full force pivot to a sustainable growth model," CEO Ethan Brown told investors back in early November.
The rebound path
The bullish thesis around this stock isn't hard to see. As a leader in the alternative protein space, Beyond Meat has a good shot at holding that position after the current shakeout that's happening due to the demand slowdown. Too many competitors raced into the niche just as sales trends slowed, and many of them won't be around in a year or two.
With a lower cost base by late 2023, Beyond Meat could start generating significant earnings -- assuming the industry returns to steady growth.
The problem with this thesis is that it relies on several factors shifting just right for Beyond Meat. Consumers will have to shift preferences back toward plant-based meat products, competitors need to exit the space, and the economy has to support rising grocery spending on discretionary products. And even then, the company has an uphill battle in establishing sustainable earnings growth.
That's why investors should avoid seeing Beyond Meat's stock price decline as a screaming buy opportunity. Shares might rebound in 2023, especially if economic trends are surprisingly strong. But the company looks too weak from a financial position to make it a good stock buy today.
There are more attractive growth stocks to consider that aren't burning through cash and posting double-digit sales declines.
