Wall Street has no appetite for Beyond Meat (BYND -4.70%) stock these days. Its shares plunged over the past year as the plant-based protein specialist saw collapsing demand, thanks partly to consumers' preference for cheaper meat products.
In response, Beyond Meat has launched an aggressive restructuring program to produce a much more efficient business. Success here might allow the company to hold a dominant position in the industry niche after the current shake-out removes some competition.
Let's look at the stock's multi-year potential against that challenging backdrop.
The major takeaway from Beyond Meat's most recent earnings report was that its operating trends have yet to stabilize. Sales were down a blistering 21% (to $80 million) in the period that ran through late December and fell 10% for the full 2022 year. Beyond Meat lost money on both a gross and net basis, with net loss landing at $67 million, or over 80% of sales.
These figures demonstrate that it may be several more quarters before the company can work through its excess inventory and get production levels down to match current demand. The metrics also point to continued ambivalence from consumers around high-priced meat substitutes in this inflationary environment. Without pricing power, Beyond Meat and its peers are exposed to more short-term losses. Most Wall Street pros are bracing for a $3.53 loss per share for the full 2023 year.
The rebound plan
Management's rebound plan calls for dramatic cost cuts that allow Beyond Meat to generate profits at a lower sales rate. The company took steps in that direction in late 2022 by reducing inventory and closing factories. "We are making solid progress in our transition to a sustainable growth model," CEO Ethan Brown told investors in late February.
While it is early on in this process, investors can see a hint of progress in Beyond Meat's gross profit, which improved to a 6% loss in the fourth quarter. If the company can improve further on this score, it has a good shot at maintaining a strong enough market position to lead in the industry's next cyclical upturn. But its wider problem could be apathy on the part of consumers around the wider plant-based product niche.
Wait and see
It's easy to imagine Beyond Meat's stock trouncing the market in that optimistic scenario. Shares have declined to a valuation of less than 3 times sales, after all, compared to roughly 20 times sales in mid-2021. Wall Street would likely assign a much higher premium to the stock once the company is sustainably growing sales and generating steady profits.
Yet, it's too early for investors to have much confidence in that rebound path. The first step in its financial recovery is to reach positive cash flow trends, which Beyond Meat is hoping to achieve by late 2023. Hitting this milestone will provide much-needed flexibility to deal with what could be a prolonged period of weaker demand.
Investors should watch for signs of that turnaround starting over the next few quarters. But until then, the stock looks too risky given Beyond Meat's large operating losses. Shares could enjoy a rally over the next few years in the most optimistic scenario. But most investors will want to see more progress in the rebound strategy, as well as more evidence that consumers are willing to pay higher prices for meat substitutes before buying the stock.