Beyond Meat (BYND -1.46%) shareholders might be in for another rough trading period ahead. The plant-based protein specialist is due to report fourth-quarter earnings on Feb. 23 and issue a detailed outlook for fiscal 2023.
Management's last few operating updates haven't contained much good news about the business, which is reeling from falling demand and spiking costs. Yet shares are up over 35% year to date.
Let's look at whether the stock's jump is setting investors up for more disappointment or if it's the start of a longer-term rally.
The growth problem
Beyond Meat has a serious problem with its top line. After rising sharply through earlier phases of the pandemic, volume is down in recent months. Sales fell 23% in the fiscal third quarter (ended Oct. 1), even though the company's plant-based beef, chicken, and pork products were available at nearly 50% more retailers and distributors..
Consumers aren't nearly as interested in trying plant-based meat products today as they were just a few years ago, and that demand pressure is being amplified by inflation. There's less of an appetite to try Beyond Burgers when grocery prices are jumping. "[R]ecord inflation continues to pose a challenge for our brand and category," CEO Ethan Brown said in the third-quarter earnings release.
Rebound strategy
The bullish thesis for this stock rests on a few big assumptions. First, demand will stabilize over the next few quarters as inflation levels off. Second, Beyond Meat's aggressive cost cuts and production shifts will boost profitability.
And third, the company will be poised to capture more of the growth rebound, because the demand slump has already shaken many competitors out of the industry. A leading brand position could set Beyond Meat up for a big recovery in a less-crowded industry.
Looking ahead
The company's late-February earnings report will likely show solid progress in these areas. Costs are coming down due to management's aggressive restructuring plan. Executives believe they can return to positive operating cash flow by the second half of 2023.
Still, Wall Street analysts expect revenue to fall 25% in the fiscal fourth quarter, meaning the company could still be a long ways off from reporting sales growth. And it's not clear whether consumers are willing to pay a premium over traditional meats for plant-based products anymore. That puts Beyond Meat's profitability in question, making it a risky pick.
Until Beyond Meat can end its streak of revenue declines and net losses while showing that new product releases can spur higher sales, the stock will likely remain under pressure. Beyond Meat shares are still down 75% since early 2022, even after the rally over the last few weeks. It's possible investors will receive excellent returns for taking on this risky bet, but most are better off watching this stock from the sidelines.
